Workshop on Development of Retail Banking in Vietnam Organized by State Bank of Vietnam Wealth Management Markets: Experiences of Japan and Implications to Vietnam December, 2007 Vietnam Presentation by Yoko Ogimoto Nomura Research Institute
Table of Contents Copyright 2007 Nomura Research Institute, Ltd. All rights reserved. 1 1. What is wealth management? 2. How wealthy should an individual be? 3. Wealth Management in Japan 1) Segmentation of Customers 2) Design of Approaches 3) Real Assets as Investment 4) Brief History 4. Hypothetical Key Factors for Success (KFS) for Vietnam 5. Development of Investment Funds: Benefit of Diversification 6. Bank is at the best position as Wealth Manager
1. What is wealth management? Copyright 2007 Nomura Research Institute, Ltd. All rights reserved. 2 Theoretical functions of financial services Wealth Management: Solution for needs on assets Financing and Investment How can I increase my assets? How can I finance costs of new house? Settlement Risk Protection What happens to my children s education if I die? How much should I pay for my mobile this month?
2. How wealthy should an individual be? Management of assets is necessary for everyone. Banks focus on wealthy people, because it tends to be more efficient for the bankers. Case of Japan Net financial assets HNWIs 500 million Affluent 100 million Mass affluent 50 million Upper mass retail 30 million Mass retail Main Goal on Management of Asset Protection + Growth Accumulation + Growth Usually this is called wealth management. But the similar function is necessary for this as well. Banks differentiate approaches depending on the size of assets of the customer. Copyright 2007 Nomura Research Institute, Ltd. All rights reserved. 3
3. Wealth Management in Japan Copyright 2007 Nomura Research Institute, Ltd. All rights reserved. 4 1) Segmentation of Customers 2) Design of Approaches 3) Real Assets as Investment 4) Brief History
1) Segmentation of Customers (1) Estimate target assets. Rough estimate of the market size helps to determine your strategy. Affluent and HNWI markets in Japan (2005) Net financial assets 500 million HNWIs 46 trillion (52,000 households) 100 million 50 million 30 million Affluent Mass affluent Upper mass retail Mass retail 167 trillion (813,000 households) 182 trillion (2,804,000 households) 246 trillion (7,019,000 households) 512 trillion (38,315,000 households) Notes: 1. The upper row in each category indicates the value of financial assets, and the lower row indicates the number of households. 2. Figures for 2005 are estimated by NRI based on National Tax Agency, Statistical Report of the National Tax Agency (2004); Ministry of Internal Affairs and Communications, Population Estimates (2004); Ministry of Internal Affairs and Communications, National Survey of Consumption (2004); and NRI, Questionnaire Survey of 10,000 Consumers (2003). Source: Estimates by NRI. Copyright 2007 Nomura Research Institute, Ltd. All rights reserved. 5
1) Segmentation of Customers Reference: Share of the market in Japan Depending on the level of asset size, share among financial institutions slightly differ. Mass affluent (financial assets worth 50-100 million) Account ownership rankings in Japan Affluent (financial assets worth 100-500 million) HNWIs (financial assets worth over 500 million) Rank (%) (%) (%) 1 2 3 4 5 6 7 8 Bank of Tokyo-Mitsubishi UFJ Sumitomo Mitsui Banking Mizuho Bank Nomura Securities Nikko Cordial Securities Daiwa Securities Mitsubishi UFJ Securities Chuo Mitsui Trust and Banking 63 45 43 40 29 22 17 17 1 2 3 4 5 6 7 8 Bank of Tokyo-Mitsubishi UFJ Sumitomo Mitsui Banking Mizuho Bank Nomura Securities Nikko Cordial Securities Daiwa Securities Mitsubishi UFJ Securities Citibank 65 53 49 49 30 26 20 18 1 2 3 4 5 6 7 8 Nomura Securities Bank of Tokyo-Mitsubishi UFJ Mizuho Bank Sumitomo Mitsui Banking Daiwa Securities Nikko Cordial Securities Citibank Mitsubishi UFJ Securities 61 61 58 52 43 41 30 25 9 10 13 14 Mitsubishi UFJ Trust and Banking Shinko Securities Citibank Shinsei Bank Merrill Lynch Japan Securities Sumitomo Trust & Banking 16 9 9 7 6 9 10 13 14 Mitsubishi UFJ Trust and Banking Chuo Mitsui Trust and Banking Shinko Securities Shinsei Bank Sumitomo Trust & Banking Merrill Lynch Japan Securities 15 13 10 10 6 9 10 13 14 Sumitomo Trust & Banking Chuo Mitsui Trust and Banking Merrill Lynch Japan Securities Shinko Securities Shinsei Bank Mitsubishi UFJ Trust and Banking 10 10 9 8 (N=84) (N=191) (N=90) Copyright 2007 Nomura Research Institute, Ltd. All rights reserved. Source: NRI survey of 191 affluent individuals and 90 HNWIs 6
1) Segmentation of Customers (2) Understand key factors: Occupation Occupation tells a lot about behavior of the individuals. CEO of a company is well educated, confident, and very busy person, who is likely to appreciate professional advices on his/her assets as well as business. Occupation of wealthy people in Japan Employees Other Self-employed or agriculture, forestry, or fishery Chief executive of unlisted enterprise Director of private enterprise or organization Professional Physician Source: NRI survey of 191 affluent individuals and 90 HNWIs Copyright 2007 Nomura Research Institute, Ltd. All rights reserved. 7
1) Segmentation of Customers (2) Understand key factors: Path to wealthy As an example, people who rich suddenly lack experience and information to manage their wealth. Those people can be unhappy with their sudden wealth as they worry not to lose their wealth without knowing solutions. Such people can be a loyal client for a banker, once a banker acquires trust. Financial assets Three paths to becoming affluent and HNWI Affluent/ HNWIs Path 1: Born rich Wealthy family, etc. Investment failure Investment success About 100 million Path 3: Sudden wealth Inherit wealth from spouse, sale of business, etc. Path 2: Steady accumulation Lawyers, professionals, business owners, etc. Lifetime Childhood Adolescence Middle-age Retirement Copyright 2007 Nomura Research Institute, Ltd. All rights reserved. 8
1) Segmentation of Customers (2) Understand key factors: B/S and CF Knowledge of customers balance sheet and cash flow provides information on desired products and services. When providing advisory service, such knowledge is essential. Asset portfolios by asset class in Japan Investment trusts % Mass affluent ( 50-100 million) Single-payment life and annuity insurance 7% Bonds 5% Risk assets (57%) Separately managed accounts (SMAs) 0% Alternative products 1% Deposits 42% Others 0% (N=68) Classification of products Foreign currency deposits and MMFs 4% Single-payment life and annuity insurance 5% Bonds 9% Investment trusts 12% Affluent ( 100-500 million) Separately managed accounts (SMAs) 0% Stocks 30% Stocks 27% Risk assets (61%) Alternative products 2% Others 2% Deposits 39% (N=148) Foreign currency deposits and MMFs 4% Separately managed accounts (SMAs) 1% Single-payment life and annuity insurance 4% Bonds 9% Investment trusts % HNWIs (> 500 million) Risk assets (77%) Alternative products 3% Stocks 35% Others 5% Deposits 23% (N=78) Foreign currency deposits and MMFs 9% Deposits includes MRFs, deposits, cash trusts, and loan trusts. Stocks includes Japanese and foreign stocks and organizations for employee stock ownership, and excludes unlisted stocks. Investment trusts includes domestic and foreign trusts, ETFs, and REITs. Bonds includes Japanese and foreign bonds. Single-payment life and annuity insurance consists of fixed annuity insurance, variable (investment-type) annuity insurance, endowment insurance, and whole-term insurance whose premiums are paid in their entirety as a lump sum, and excludes term insurance. Separately managed accounts (SMAs) are asset management services that provide a bundle of services, including advice on asset management and stock orders. Alternative products consist of hedge funds, commodity funds, structured bonds (bonds whose yield and/or redemption conditions change according to the movement of the Nikkei 225, foreign exchange rates, or market interest rates, etc.), and so on. Copyright 2007 Nomura Research Institute, Ltd. All rights reserved. Source: NRI survey of 191 affluent individuals and 90 HNWIs 9
2) Design of Approaches Copyright 2007 Nomura Research Institute, Ltd. All rights reserved. 10 Thanks to the development of technology, mass retail segment can be provided with wealth management service, at least partially. Affluent and HNWI markets in Japan (2005) Example of Approaches Net financial assets 500 million HNWIs 46 trillion (52,000 households) Account Representative (Rep) + others 100 million Affluent 167 trillion (813,000 households) 50 million Mass affluent 182 trillion (2,804,000 households) Special counter + others 30 million Upper mass retail Mass retail 246 trillion (7,019,000 households) 512 trillion (38,315,000 households) Common counter Website ATM Call center
2) Design of Approaches : Human Touch Approach Depending on the customer s characteristics, single account representative or team would be necessary. Service provided by single rep Pair combining sales rep and investment rep Customer Rep Support Support Backup team External network Customer Advice on trading of financial products Introduction of nonfinancial products Sales rep Linkage Investment rep Support Support Backup team External team Advice on management and investment of assets Proposal of financial products Advice and introductions regarding matters other than financial products Mainly advice on allocation of assets (trusts, SMAs, etc.) These approaches may be costly if applied to all individual customers. Copyright 2007 Nomura Research Institute, Ltd. All rights reserved.
2) Design of Approaches: Website Approach People need to manage their assets as a portfolio, covering all accounts (with all institutions, ideally.) At least all accounts at one bank can be aggregated, even though aggregation of other bank accounts may not be possible for time being. Image of Account Aggregation Service using Website Image of Internet Banking Source: NRI, Nomura Securities, Sumitomo Mitsui Bank This can be provided to all customers who have Internet access. Copyright 2007 Nomura Research Institute, Ltd. All rights reserved. 12
3) Real Assets as Investment Copyright 2007 Nomura Research Institute, Ltd. All rights reserved. 13 Real estate is essential element of their investment portfolio for wealthy people in Japan. Rate of ownership of real estate assets (%) Current residence Second home Family residence Idle land Rental or investment real estate Agricultural, forestry, or mountain land Average number of items of real estate owned Mass affluent: 5.5 Affluent: 6.6 HNWIs: 7.1 Mass affluent ( 50-100 million) (N=84) Affluent ( 100-500 million) (N=191) HNWIs (> 500 million) (N=90) Other real estate in Japan Real estate overseas
Copyright 2007 Nomura Research Institute, Ltd. All rights reserved. 14 4) Brief History: Japanese banks didn t know their customers. Traditionally, Japanese banks were pressured to treat all the customers equally. Banks did not consider about segmentation of the customers, differentiation of services and products, either. As the competition becomes fierce, to retain customers, to gain customer satisfactions, and maximize life time value of the customers, Japanese banks started to analyze their customers carefully in late 90 s and provide differentiated services. 1945 Equal Treatment 1990 Segmentation and Target Marketing 2007 Foreign banks target wealthy people in Japan. Deregulation: Financial Big Bang (1996) Banks became possible to sell investment trusts (1998) Financial Crisis (1997) Japanese banks started wealth management services. More foreign banks enter wealth management market.
Copyright 2007 Nomura Research Institute, Ltd. All rights reserved. 15 4. Hypothetical Key Factors for Success (KFS) for Vietnam KFS 1: Identify target segments. KFS 2: Design necessary and affordable approaches. KFS 3: Don t forget real assets such as real estate and gold!
Copyright 2007 Nomura Research Institute, Ltd. All rights reserved. 16 5. Development of Investment Funds: Benefit of Diversification Investment funds can provide diversification with limited amount. Diversification is a way to reduce risk while appreciating return. Image of Diversification Total Asset of Mr. A: not diversified well. Total Asset of Mr. B: well diversified. Deposit 14% XXX 18% Portfolio in Fund Deposit % ZZZ 41% YYY 27% Fund 89% Mr. B s assets in total are safer than Mr. A s assets.
Copyright 2007 Nomura Research Institute, Ltd. All rights reserved. 17 6. Bank is at best position as Wealth Manager Banks can provide total solution for most of financial concerns for individuals. Bank Financing and Investment: Loan Deposits I can deposit to accumulate asset for future! I can lend mortgage loan to buy a house! Settlement: ATM, electronic transfer, debit/credit card Risk Protection: Insurance I can buy insurance to protect education fund for my kids! I can use e- transfer to pay my mobile phone charge on time!