17th in an occasional series on financial deregulation

Staff writer

U.S.-based Fidelity, the world’s largest mutual fund group, was concerned about how Japan’s economic troubles would affect people’s thinking before it launched direct sales in April.

Interestingly, the recession and bleak outlook have actually helped its business, according to Donna Morris, head of the Tokyo branch of Fidelity Brokerage Services.

The negative economic factors “made individuals — consumers and investors — here somewhat nervous,” she said in a recent interview, but this caused them to seek investment options as well.

She cited several factors: pension plans not sufficiently funded, lifetime employment no longer guaranteed and savings with marginal interest rates unable to finance people’s long-term goals.

Some of that “unrest” has prompted consumers to call Fidelity and ask about the funds it provides, she said. In 4 1/2 months, the Tokyo branch has received tens of thousands of telephone calls and opened thousands of new accounts, Morris said, adding, “Our business is actually stronger than we anticipated.”

Most of the customers in direct sales are men over age 45 who have experience buying funds, Morris said.

Direct selling is Fidelity’s third distribution channel in Japan, after distribution through brokerages and banks. The Tokyo branch sells eight investment trust funds — Japanese equivalents of mutual funds — via toll-free calls, mail, fax and the Internet.

These funds are managed mainly in stocks and bonds by Fidelity Investments Japan, another unit of the group, which serves as a manufacturer of funds as opposed to a retailer.

The Fidelity group manages mutual fund assets worth about 95 trillion yen around the world. The amount of funds in Japan managed by all investment houses operating here is 45 trillion yen. Fidelity’s share is 162 billion yen.

Bank and postal deposits have long been the dominant form for Japanese to manage their money. Investment trusts — risky but potentially more lucrative — have played only a marginal role in Japan.

Fidelity’s telephone representatives have spent considerable time educating customers about the merits of regular and long-term investment, Morris said, adding that Japanese investors typically are concerned about the best date to buy funds. They are “trying to figure out how to time the market,” she said. “Most individual investors are never going to be successful in timing the market. In fact, the buy-and-hold strategy over time will provide you with much better results,” Morris said.

She also points to the “trading mentality” of Japanese customers. They hold funds for less than six months on average, while Americans do so for about 3 1/2 years, according to Fidelity’s research.

That mind-set can be attributed to the traditional practice of Japanese securities firms to urge their customers to frequently buy and sell funds to earn commissions through transactions.

Morris spoke proudly of Fidelity’s needs-based sales approach. Through telephone conversations, the representatives try to find out customers’ needs — whether they need money for retirement or for their children’s education, for instance — and offer options so that customers can decide on their own.

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