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Published on March 7, 2008

In the past 10 years, many wealthy locals have seen their net worth grow significantly, although many of them had lost their shirts in the 1997 financial meltdown.

Better-educated business owners, some of whom have strategic partners, and competitive exporters now form a group of rich people who employ wealth managers to make investment decisions for them.

There are an estimated 100,000 locals that are in the high net-worth bracket as they have Bt10 million or more in cash or liquid assets.

This is a fairly sizeable number when compared to the 200 million high net-worth individuals worldwide.

There is apparently much room for wealth-management businesses to grow in Thailand.

"The wealth of better-educated businessmen and those who have benefited from the economic expansion is expanding at an accelerated pace. The wealth of the middle class - or so-called mass affluence - is also expanding several fold both in Bangkok and in the provinces," said Siam Commercial Bank executive vice president Adisorn Sermchaiwong.

Thai savers now know better how to make money - and their fortunes are mounting.

"People care more about how much they have in their pocket. They used to stick only to bank deposits. But now more are turning to new products. Some have been educated by their children who have come back from studies abroad, bringing back information about new financial products that can boost the family's fortunes," said Kasikornbank senior vice president Patcharin Wongsiridej.

Wealth managers at financial institutions are all fully aware of this group of potential customers, having seen some customers each park up to Bt1 billion at their banks.

"All banks are aggressively pursuing such customers and they have set a high target [for the wealth-management business]. The battle has just started. All banks are currently signing up customers. But their success will depend on the calibre of their teams, their brand, track record and most importantly, a consistent performance," said Tisco Bank's head of treasury and private banking, Metha Pingsuthiwong.

Apart from wealthy entrepreneurs and members of the old rich, the banks have also identified a new market comprised of young wealthy individuals in the entertainment and sports industries.

The trend is similar to that in emerging markets such as China, India and the Middle East. Also, more global funds are eyeing Asia, where returns are perceived to be higher than those in traditional markets such as the United States and Europe.

Only the best for customers

The banks say they will offer their best services for high net-worth customers.

When dealing with wealthy people, one has to realise the knocking-on-doors method may do more harm than good. "It is word of mouth that works [best]. It is almost impossible to use a hard-sell approach for people who have Bt200 million to Bt300 million," warned Citibank retail banking director Pavin Rodloytuk.

"You must rely on their friends to refer your services to them. We keep watch on how willing they are to refer us," Pavin said.

The banks also need to be able to offer everything these clients want.

Aside from basic products such as deposits and mutual funds, wealth managers want something more sophisticated like investments in commodities, bonds, equities, and structured products.

Though not many sophisticated financial products are available locally, more local investors are ready to try something a bit more complicated, say wealth managers.

More complicated products

Thailand now has structured products such as principal-protected equity funds, which are normal equity funds bundled with derivatives.

Principal-guaranteed products generate roughly 7-10 per cent of returns per annum and are very popular among the rich.

Over the past five years, a number of locals who had been hurt by mutual funds and corporate bonds 10 years ago have learned from their mistakes and have begun to put money in mutual funds again.

Part of the trend is helped by the government providing tax incentives for funds such as long-term equity funds and retirement mutual funds.

Another popular product is the foreign investment fund, which has drawn several hundreds of millions of baht from each of the banks in the past year.

Commodity-mixed funds including gold and oil are also popular alternative investments.

"This year we see soft commodity stars such as rice among the rising stars. But I think gold is currently quite expensive. Credit-linked notes and structured products are also interesting," said Kasikornbank first senior vice president Tawit Thanachanan.

Question over demand

But demand for the more sophisticated products among rich locals is not so strong.

Some banks believe they can offer "advanced financial products" but the clients' understanding and willingness to buy such products is still low.

"Do clients have a good understanding of complicated products? Probably not. So even though such products may be popular abroad, they may not be suitable for locals," Siam Commercial Bank's Adisorn said.

The demands of customers who have a net worth under Bt5 million may be simpler. This is because they are not acquainted with such sophisticated products and are even more conservative about taking risks.

"Wealthy locals are not like those in the West, such as the US market. Thais understand basic products, not structured products. We [at Tisco] can find more sophisticated ones for them, but demand is quite low," Metha said.

Some customers even don't want to decide where or how to invest, as they want wealth managers to do this job for them. Some wealth managers also provide this form of discretionary portfolio to customers. And they will most certainly charge management fees.

This is the first of a two-part series about the growing wealth-management business.

The second part will be published tomorrow.

Jiwamol Kanoksilp

The Nation