Australia's AMP Securities has just entered the Japanese defined contribution business, having launched a retail mutual funds effort in January, says Adam Hutchison, member of the board and project director in Tokyo.
The DC market as well as the retail segment has so far disappointed fund managers, who have been scaling back operations here for the past 12 months. But Hutchison believes a new entrant with realistic expectations and non-traditional distribution can learn from competitors' mistakes and make a tidy business.
AMP has been sniffing around Japan's investment community for an opportunity since 1997, when it investigated acquiring a distressed life insurer, but by 1999 it decided against this approach. But the size of Japan's savings pool and the immaturity of its funds market had AMP convinced it could play a role. Moreover, the firm believed it could utilize its considerable experience in Australian pensions to bring something of value to the Japanese market.
Hutchison moved to Tokyo in March, 2000 to design a business plan, which was completed in early 2001. In it he saw opportunities in retail mutual funds and defined contribution for small- and medium-sized enterprises (SMEs). He put together a team and in January of this year, AMP launched a mutual fund business. Futhermore, it has just won the license to manage DC plans, although this hasn't been formally announced.
"Our approach is to leverage non-traditional distribution channels," he says. For DC, AMP has established a relationship with Myroku Jyoho Service (MJS), Japan's second-largest manufacturer of payroll and accounting software. MJS has relationships with 8,000 tax accountants, which in turn have relationships with many SMEs.
AMP is also in talks with banks, but tax accountants have more influence with the SME segment, and banks, which have dealings with many fund managers, have less incentive to cooperate as extensively with AMP.
AMP is also importing its Australian recordkeeping system. Only a handful of DC providers in Japan are using proprietary systems; most have been forced to lump with one of two giant recordkeeping consortia, which are clumsy and expensive. Hutchison says the relatively low costs of using the in-house system, tweaked for the Japanese market, means AMP can compete better on cost, which is crucial in the SME segment. It also allows AMP to offer recordkeeping services to other providers, provided these can be bundled with other services such as managing funds in a DC plan.
AMP has pursued a similar small-scale strategy for retail funds, where it has an exclusive relationship with FP Planet, Japan's first and largest independent financial advisor. AMP offers a portfolio of multi-manager funds that it hopes will catch on with investors bewildered by the huge funds choice. "We looked at 2,000 funds. Consumers face an overwhelming selection, and we can tell them to rely on our expertise for picking funds," Hutchison explains.
The IFA channel, however, is still in its infancy. Japanese regulations prohibit advice on both pension and non-pension investments, which makes the idea of a financial advisor that can put together a complete financial package for customers rather weak in Japan. AMP has experiencing reinventing traditional sales forces into financial planners, but the regulatory structure in Japan will have to change before AMP can fully leverage its skills.