Wealth Management in Japan: Everlasting Mirage or the Turning of the Tide?

Executive Summary

Japan has a large savings pool, but only a small portion of this is professionally managed. This and myriad of societal and financial consequences are well acknowledged. The problem is made more acute by people living longer in retirement. In this context, there is an urgent need and an opportunity for wealth management models that cater to a broader Japanese population.

Our customer survey covering ~3,600 respondents across a range of age, affluence, life stage, behaviors, employment backgrounds, and investment attitudes, pointed towards eight distinct customer segments that should be receptive to the best wealth-management offerings. Although five of these groups represented existing investors, three are what we call “attractive non-investors” (i.e., those who are waiting on the sidelines for the right proposition and conditions to re-enter the market). Each segment has substantive investment assets (long term) and needs that go beyond financial products. Thus, many people are receptive to advice and are willing to pay for it.

To capture this business, companies should think less about products and more about their customers. Firms should tackle the challenge of financial literacy head-on and give customers the confidence to stay invested. Companies must also shift towards goal-oriented and lifestyle-based approaches and recognize that these things change over time. Advice plays a critical role in enabling these changes, and we recognize that it can take different forms, including digital ones. Furthermore, there is presently an untapped opportunity to leverage digital to better engage customers and deflect extraneous costs away from business models. Lastly, we recognize that businesses often cannot do this on their own. The winning organizations will be those that work with local governments, employers, and regulators to help support societal objectives around financial literacy to create an environment that nurtures wealth creation.

We believe there is no shortage of players (extant and new) that can credibly offer a customer-focused wealth- management service. As their management teams start thinking about this, they should ask themselves six key questions:

  • Who will be our customers and what is our unique proposition (i.e., why will customers give us their business)?
  • How will we respond to the six fundamental requirements of a customer-centric wealth-management business?
  • What is the role of digital in this new business model?
  • How can we use existing distribution to access customers, and is that enough?
  • How do we efficiently source products?
  • How can we meet our societal responsibility to drive financial literacy?

Context - Growth, Shocks, and Timing of Change

The history of wealth accumulation in Japan is well documented and goes back several decades. It includes significant investments into real estate and stock markets. The Japanese economy weathered the market crash of the early 90’s (the “lost decade”) as the liquidity crunch worked itself through the system. It survived the impacts of the Lehman crisis and has maintained a sustainable recovery ever since, apart from being blunted by the impacts of the COVID-19 pandemic. While the situation continues to evolve, the short-to-medium term economic impacts are already becoming clear (e.g., subdued business activity, reduced factory output, slowdown in personal consumption, significant reduction in tourism-related spending, increasing partial and full unemployment, sales staff unable to interface customers, and sustained strain on businesses’ cash flows). There is no doubt that this will have an impact on wealth creation both now and in the future. However, the shortfall in retirement funding and the underlying need for wealth creation has not gone away because of the COVID-19 crisis.

Through these ups and downs, two constants have remained. One is the high level of cash-based savings and the limited focus on asset growth amongst Japanese citizens. In a deflationary, risk-averse environment, this course of action makes perfect sense. The second is the role employers and the government play in providing a retirement safety net. However, a perfect storm of demographic and market factors means that Japan must re-examine how its citizens think about retirement.

First, life expectancy has steadily increased, but retirement age and wages have not quite kept pace. Consequently, citizens need to fund longer retirement periods.

Second, aging population dynamics have resulted in an increasingly smaller working population, placing acute pressure on government finances and the ability to provide a social safety net for the Japanese populace.

Third, the steady migration, particularly of younger people, from rural areas to major metropolitan areas (e.g., Tokyo and Osaka) is further concentrating wealth in a few areas while depleting that of outlying regions.

Fourth, employment practices are changing. The concept of “jobs for life” has steadily eroded, and younger generations are more open to changing careers. Although this provides broadened experience, it does limit their ability to build assets within a single employer-sponsored pension scheme.

Fifth, on a net basis, the value gained by Japanese financial service customers has been limited. The fees and commissions charged to customers are higher than those in other markets. However, the performance is comparable. Customers see little value in handing their assets over to someone else when the price is so high.

Sixth, financial products in Japan are largely “pushed,” meaning that there is very little pull through demand, and there is a limited focus on educating customers about long-term choices and impacts. The result is that customers face the risk of being matched with products that may not suit their needs.

Given the acute retirement-income challenge and the limited customer-oriented offerings available in the market, the question has to be asked, “is there an opportunity to solve the retirement income problem for Japanese citizens?” Our belief is that “yes,” this is possible through a wealth-management model that (1) meets the needs of customers, (2) provides new opportunities for incumbent financial services players, (3) enables employers to meet their social obligations, and (4) is nurtured by long-sighted government policy.

The Customer-oriented Wealth Opportunity

Over the past decade, the Japanese government and regulators have taken measures to make wealth management more accessible to a broader set of customers. Programs like the Nippon Individual Savings Account (NISA) and the government-recommended contribution schemes offered by larger employers are steps in the right direction. However, much remains to be done to improve access and participation. More recently, the FSA’s publication on the JPY20m savings gap was an explicit admission of the impending retirement funding shortfall, and the start of an important dialog among the government, financial institutions, and consumers. Furthermore, 55% of our survey respondents*1 indicated they had or expected to receive a large inheritance in addition to wealth creation. Therefore, the wealth-management industry in Japan needs to actively solve for the intergenerational wealth transfer problem. Add in the large portion of savings that remain cash based, and the customer-oriented wealth opportunity in Japan is substantial.

First, we must understand who the future wealth customer will be. Beyond simple demographic and affluence-based segmentations, we consider broader life-stage needs and commensurate approaches to managing wealth. Based on our survey, we identified eight broad segments of the Japan market with three comprising attractive non-investing customer groups that could be tempted with the right proposition:


*1: PwC Strategy& Customer Wealth Survey - conducted March 2020 with a sample of ~3,600 respondents covering investors and noninvestors, age groups ranging from 20 to 80, with representation across employment categories, geographic spread across Japan, and affluence.

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Mukund Rajan

Mukund Rajan

Partner, Strategy& Netherlands

Toshiya Tsutsumi

Toshiya Tsutsumi

Director, PwC Japan

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