Bloggers turn regulators in Japan’s shaming of asset managers
Japan's Financial Services Agency says "toshin" investment funds deliver poor returns and push investors from one trendy product to the next to generate fees
Japan’s financial regulator is trying a new tack in its fight with asset managers by bringing in bloggers to shame an industry it says provides retail investors with poor service.
The Financial Services Agency (FSA) has accused the nation’s “toshin” investment funds of charging high fees, delivering poor returns and pushing investors from one trendy product to the next to generate fees.
It hopes that inviting internet writers to meetings with investors can help spread its message further than via traditional media and so influence the “toshin” fund industry to change.
Persuading Japanese to move their savings out of bank accounts and government bonds and into riskier assets is vital for reinvigorating Japan’s long-sluggish economy and financing the retirements of its rapidly aging people, government and financial experts say.
But that is less likely to happen so long as investors receive poor service and low returns from fund managers.
“Fund distributors have gotten their asset-management subsidiaries to create products that help themselves make money, ignoring customer needs,” wrote 44-year-old blogger Kenichi Minase, who joined a recent meeting of bloggers, investors and FSA officials.
Bloggers go by pseudonyms in Japan and the FSA did not require them to give their real names at the meetings.
Minase is one of Japan’s best-known bloggers among retail investors and his blog has been viewed 41 million times since January 2016.
Minase is one of Japan’s best-known bloggers among retail investors and his blog has been viewed 41 million times since January 2016. He declined to be identified other than by his pseudonym.
“That led to creation of too many small toshin and churning of funds,” he wrote. “I think the industry’s sin is grave. We need to have a system where the industry takes into account not only their own interest but also investors’ interest.”
A lack of attractive investment trusts, critics argue, partly explains why Japanese keep more than half of their 1,800 trillion yen ($16 trillion) in personal financial assets in bank accounts generating virtually no interest, rather than in shares and other investments that would reap higher returns.
Individuals hold barely 10 percent of their total assets in stocks, with less than 6 percent in “toshin” funds.
In the United States, households have 35 percent of their financial assets in stocks and 11 percent in mutual funds, according to Bank of Japan and U.S. Federal Reserve data.
The data nerve
The FSA broadside was delivered in a speech in early April by Commissioner Nobuchika Mori, who said about 280 active Japanese stocks funds over the last 10 years had returned an average of 1.4 percent after deducting fees.
He said a third had made losses, while the benchmark Nikkei share average produced annual gains of 3 percent during that period.
Mori’s speech hit a nerve. Japan’s investment trusts that month saw their first net outflow of funds in six months, data from the Japan Investment Trusts Association showed.
The association’s vice chairman, Yoshio Okubo, said the organisation was studying the challenges facing funds and asset managers and was seeking to strengthen governance.
“We take the FSA’s criticism seriously,” he said. “But some of its comments, such as those on churning and aggressive selling of funds with monthly dividends, have more to do with sales agents rather than fund management companies.”
Satoshi Nojiri, head of Fidelity Investor Education Institute at FIL Investments Japan, said the FSA is right to promote “a shift to wealth development from savings” but said it was not clear what the authorities are seeking to do by inviting in the bloggers.
“It would be better to include the financial industry as well so both investors and the industry can move ahead hand in hand.”
The FSA regularly meets with financial professionals and other experts and began its “grassroots blogger project” in April by reaching out to individual investors and the internet writers.
“This project is ground-breaking for us – we normally don’t do this,” said Motoyuki Yufu, deputy director-general at the agency’s Planning and Coordination Bureau.
“We decided to try this new approach as we felt that communication through existing channels such as mass media has its limits, and that bloggers’ influence is powerful and this could be a major channel of communication.”
The FSA has adopted some of the bloggers’ opinions as policy, officials said, such as the criteria funds need to meet to be eligible for a new type of Nippon Individual Savings Accounts, or NISAs, the equivalent of Britain’s tax-free ISAs.
“Some FSA officials may have thought of us as a bit dodgy at first,” said 38-year-old investment blogger Mushitori Kozou, who declined to be identified beyond his pseudonym. “But we have things to say. I’m glad that the FSA is listening to us.”