Translated from a survey article originally published in Ma-Do magazine vol. 55, August 2019.

It is widely held that more than 60% of individual financial assets in Japan are owned by senior (65+) who are living longer than ever. The era of the 100-year lifespan demands innovation in asset management, an industry already undergoing change. How can asset managers best serve an aging and increasingly long-lived population? What added value can face-to-face and over-the-counter channels provide? A survey found distributors are already thinking about these issues and more.

This past June, the Financial Services Agency (FSA) caused a stir when it reported that the average elderly Japanese couple, relying solely on pension benefits, would need an additional JPY 20 million to fund a 30-year retirement. To asset managers, the figure is unsurprising and easily supported, but to ordinary Japanese, it's frightening. Asset managers and others involved with life-planning and investment education should treat the FSA report as a stimulus for developing new business.

Immediately following the report, Ma-Do surveyed its subscribers* about the effects on business from this JPY 20 million figure. The most common reply was that there was "no particular effect" (40.7%), probably because most responders worked in face-to-face sales divisions at banks and brokerages. Online brokerages, however, reported "account openings increased," suggesting that investors who acted on the FSA report preferred to avoid doing so through face-to-face channels.

The 2nd most common reply was that "inquiries about asset management and financial planning increased" (30.5%). It's an encouraging signal that ordinary Japanese are perhaps hastening the move from saving to investing.

* Responses came from banks (mega, trust, Shinkin, Japan Post, etc.), brokerages, and independent financial advisers. N=118.

2000万円問題 図1

Growth areas: inheritance and lifespan of assets

The survey also asked "what areas of need are expected to grow among elderly customers?" Responses in descending order were: "management to prolong asset lifespans" (70.3%), "inheritance tax strategies" (52.5%), and "testamentary trust" (39.0%). Respondents also expected to see growth in inheritance services as well as asset management. Local banks reported already starting new "services such as drafting, managing, and executing wills, disbursement of inherited assets; and inheritance tax savings. Providing these services presents more opportunities to service all the assets of our clients, so that we have more opportunities to sell asset management and insurance products." Respondents also anticipated "setting up a specialized section for trust services and moving quickly to serve customers who have outgrown the sales branches." "Financial companies can better reach and serve elderly clients by partnering closely with home care service providers."

2000万円問題 図2

Insurance products are often used for inheritance tax savings. Among prospective products are permanent insurance policies to increase the tax exemption upon inheritance and other insurance products accommodating advancement. Some security houses have recently introduced an "investment fund wrap" service that enables calendar year gift giving and stable management.

As for "management to prolong asset lifespan," many respondents suggested individual pension insurance. Investment funds and other dividend-paying products are deservedly receiving new interest; they offer distribution and low running costs over an extended asset lifespan and can be a good hedge against inflation.

Accompanying elderly customers for life

Asset management is becoming more integrated as it moves to serve later-in-life needs such as inheritance and gifting, while sales of investment funds are slumping. What roles should financial institutions play in the era of 100-year lifespans? Respondents are already considering how to change:

"We should be a sort of in-home doctor with consulting skills for individual customers. We shouldn't just push our products, but also think together about the customer's second life, visualizing their incomes & expenses, and making sure they have assets to meet their life expectancies."

"Our role is to impart some sense of urgency to customers without damaging their trust in us. That is where it starts, thinking together with them. Letting them know that whatever their lifestyle, there are measures they can adopt, and providing them with those measures, as someone they can trust and feel safe with."

"Not to enforce the institution's needs, but to consider the needs of each elderly customer, and then propose plans to suit those needs. That is the only role for financial institutions in an era that demands more proactivity to grow your financial assets."

Local banks suggested adding services that go beyond strictly financial services:

"Banks where customers can get financial and money management counseling are able to provide a wider range of services."

"Banks are well-positioned to serve elderly people living alone, since we communicate with them often and directly when we notice changes in their accounts. We should provide services that make the lives of elderly customers more convenient, comfortable, and less anxious, which may require easing some regulations."

Clearly, asset management in the future will be more cross-sectoral and sophisticated. Face-to-face channels, whose survival is now questioned, won't survive without making these changes.