Dear Afonso,

I want to invest my money but how do I know the investment companies in Vietnam are legitimate and not just shell companies that will take my money and then disappear the next day? I’ve even heard that people have created fake branches here using well-known investment firm names.Before answering your question, we need to clarify a couple of concepts. A custodian is a financial institution that holds customers’ money. For instance, HSBC Vietnam is a custodian. An investment manager is a person or organization that makes investments on behalf of clients but doesn’t hold customers’ money. Many times the custodian and the investment manager are the same company. For example, if you have an account with HSBC Vietnam and they offer you investment advice – in essence selling you an investment – then they are both custodian and investment manager. In the last financial crisis it was obvious that there is a clear conflict of interest between both roles, and terrible results occurred like in Madoff’s case.

Custodians in Vietnam are licensed and regulated by the State Bank of Vietnam (for banks) or the State Securities Commission (for fund management companies and securities companies), under the securities law of 2006. It is easy to check if a custodian is legitimate: just contact the organizations above. Investment managers are only licensed and regulated if the investments proposed to clients are inside Vietnam, like stocks in the HCMC stock exchange. If the investments are outside Vietnam, there is no licensing or regulation as yet. And that makes sense because Vietnamese citizens are not supposed to invest elsewhere.

The problem for expats wanting to place some of their savings outside of Vietnam is to identify who to trust. The Australian Securities and Investments Commission (www.fido.asic.gov.au) regularly reports on financial scams in Asia. These reports are useful to build simple rules of thumb on how to avoid fraud:

1) If the savings/investments suggested are outside Vietnam and the investment manager says, “We are regulated/licensed in Vietnam,” then they are lying.

2) Be suspicious of the words “guaranteed” and “risk free.” There are no such things in finance.

3) Take your time, get things in writing, don’t be pressured to make a decision on the spur of the moment. There are good investments to be made all the time, don’t think if they are offering a “once in a lifetime opportunity but you must sign now” that there won’t be another one next week.

4) Be cautious of companies who cold-call. They can be very convincing; however a legitimate investment manager will get the majority of their business through referral and will not cold-call. Think of it this way: When was the last time a lawyer called you out of the blue to see if you needed any legal advice.

5) Be wary of someone or a company trying to sell an investment before really knowing your circumstances. They should match an investment to you, not the other way round.

6) Ask a lot of questions and obtain written answers. If the investment manager behaves arrogantly and avoids questions, that’s a clear sign you are dealing with a salesman.

7) Ask for referrals. What do other clients say? Referrals are other expats living in the same city as you, easily approachable, and that have worked with the investment manager for a few years at least.

Finally, I have been working in Vietnam since 2006 and the most common scam is product misrepresentation. The longest version (25 years) of Premier (a legitimate product) from Friends Provident (a legitimate custodian) is sold by ‘financial advisers’ as having charges for 1.5 years only – but you guessed it – the charges are for 25 years. To summarize, the most important thing is establishing trust with the company, person and product you are dealing with.

You should be able to answer these questions:

1) Do you trust the company? · Does it have a physical office in Vietnam? · Is it registered in a country with a strong legal/financial system? · How long has it been established?

2) Do you trust the individual? · What qualifications does this person have? · Where do they live and work? Will they disappear? · Can you contact them and arrange a meeting in person when you want to? · Are they answering questions about fees, risks, expected return that you have? · Are they a financial professional or a salesman? What qualifications do they have to give financial advice?

3) Do you trust the investment? · Is this the right investment for me? Does it suit my individual requirements? · Where is the money going to be invested? Which country and under what legal jurisdiction? · Is the expected return and risk reasonable? · What are the fees involved?