An outspoken regulator has unleashed an unusual tactic to shake up Japan’s asset-management industry.

Nobuchika Mori, the head of the Financial Services Agency, has publicly criticized the country’s money managers for what he sees as failing to offer products that suit their customers. In his eyes, that’s getting in the way of one of the key missions of Abenomics: to encourage Japanese people to move more of their $8.4 trillion in cash and bank deposits into the stock market.

In an attempt to address this, Mori is starting a new tax-free investment program for individuals who want to put a small amount of cash into equities and bonds each month for their retirement. Only cheap funds suited to long-term investment are eligible, which ruled out 99 percent of those available as of March. For one of the few money managers whose funds meet the strict criteria, the program will be a game-changer.

“It’ll be a powerful bomb,” said Haruhiro Nakano, president of Saison Asset Management Co., a provider of low-cost mutual funds in Tokyo and advocate of long-term investing. “This one is at the megaton level.”

Financial institutions “have focused on collecting fees with little regard for customers’ interests,” Mori said in a speech at the Securities Analysts Association of Japan in April. “As a result, customers find it difficult to build up their assets through investment. Does a business model like this deserve to be preserved in our society?”

There are signs Mori’s crusade is having an effect. About 120 funds in Japan are now eligible for the program, up from about 50 out of more than 5,400 in March, the FSA said last month. Assets in funds paying monthly dividends, which Mori has singled out for failing to spur long-term investing, dropped to ¥32 trillion ($284.1 billion) in August from a peak of ¥43 trillion in May 2015.

Some of the biggest asset managers have started to develop suitable funds. Nissay Asset Management Corp. plans to start some new funds that will be eligible for the new program next January, while working to promote 12 existing funds that are likely to make the grade. Mitsubishi UFJ Kokusai Asset Management Co. set up seven new funds in August designed for long-term asset building. Nomura Asset Management Co., which oversees $435 billion, said it’s considering responding to the program.

“The FSA is using brute force to change Japanese funds,” said Saison’s Nakano, whose firm managed $1.5 billion as of the end of March. By making almost all existing funds ineligible for the program, the regulator is sending a message on how useless they are for long-term investing, he said.

Mori’s brainchild, named Installment-type NISA (Nippon Individual Savings Account), starts from Jan. 1. It allows individuals to invest as much as ¥400,000 a year in domestic or foreign stock or bond funds for as long as 20 years without taxes on capital gains or dividends.

The funds must be approved by the FSA as cheap and suitable for long-term investing. They can’t be leveraged, offer monthly dividends or have a short trust period. They can’t charge a sales commission, and must have a management fee of 0.5 percent or lower for funds investing in domestic assets and 0.75 percent or less for those targeting foreign assets. And they must have had net inflows for two-thirds of the time since their establishment.

The program was established to encourage long-term, stable asset building, said an FSA official who asked not to be identified, citing agency policy.

These funds “have very low fees, so turning a profit will take time,” said Toshisuke Yomo, chief manager of corporate planning at Mitsubishi UFJ Kokusai. “But we also need to take part in things like this. We need to broaden the range of available funds.”

Daiwa Asset Management Co.’s Atsushi Matsushita said he doesn’t know how much impact the new program will have. The company has 12 passive funds that will probably be eligible. “The profit margin may be thin,” said Matsushita, the head of marketing planning at the money manager. But even so, “eventually we’ll be able to make money from scale.”

Others in the industry are openly critical.

Shoko Shinoda, a fund analyst at Rakuten Securities Inc., said the program is “half-baked.” People in Japan, already overwhelmed by too many investing options, will now be confused because they have to choose between Installment-type NISA or a previous version of the tax breaks that started in 2014, she said. And the low-cost push won’t serve brokerages either, who will be forced to offer funds that don’t pay.

“Who’s going to be happy with this system?” she said. “I just can’t see it.”

Almost 11 million people had opened accounts under the original NISA program as of the end of March, according to FSA data. But some 39 percent of accounts at brokerages remain unused, the Japan Securities Dealers Association said. Not only that, most account holders are at least 60 years old. For Nakano, whose firm managed one of just five active mutual funds estimated to meet the criteria for the new program as of March, that’s why Mori and the FSA are trying again.

“The situation’s been awful,” Nakano said, referring to use of the original NISA.

Despite Mori’s initial successes, big challenges lie ahead. Japanese households still hold 52 percent of their financial assets in cash or savings, and only 15 percent in stocks or funds, according to the Bank of Japan. In the U.S., 47 percent of assets are in stocks or funds. In Europe, the figure is 27 percent.

But the 60-year-old FSA commissioner, whose term was renewed in July for a third year, is unlikely to back down in his battle with the industry anytime soon, regardless of the feathers he’s ruffled. And in long-term investing devotees like Saison’s Nakano, he’s also won himself some friends.

“You saw this big figure emerge at the FSA called Mori,” Nakano said. The agency is “no longer willing to protect the financial industry. That’s the big difference.”

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