Report of the Working Group on Asset Management

June 30, 2016
The Working Group on Asset Management

Table of Contents

I. Introduction................................................................................................................................ 1
II. Issues and initiatives for strengthening asset management capabilities and enhancing
confidence in the asset management industry .......................................................................... 1
1. Attracting highly skilled financial professionals and setting up training facilities ................ 2
2. Securing human resources for asset management ................................................................. 4
3. Asset management companies fulfilling their fiduciary duty ................................................ 5
4. Globalization of investment trusts ......................................................................................... 9
5. Promoting the FinTech business .......................................................................................... 12
III. Issues and initiatives for providing products that contribute to medium- to long-term asset
building .................................................................................................................................. 12
1. Promoting the development and sales of products that contribute to medium- to long-range
asset building ........................................................................................................................... 13
2. Provide more information to customers .............................................................................. 14
3. Promoting the use of defined contribution (DC) pension plans, expanding and perpetuating
the NISA and Junior NISA tax exemption systems ................................................................. 16
4. Raising financial literacy ..................................................................................................... 18
IV. Issues and initiatives for improving the business environment ............................................. 20
1. Promoting the entry of new asset management companies, etc. ......................................... 21
2. Rationalizing and optimizing the middle/back-office ......................................................... 22
3. Clustering the asset management industry in Kabuto-cho .................................................. 23
V. Conclusion .............................................................................................................................. 24
Appendix 1 and 2 ............................................................................................................................... 26

I. Introduction

The establishment of Tokyo’s status as a global financial center will not only enhance thedevelopment of Japan’s financial and capital markets, but also be a significant growth strategy for
maintaining and sustainably promoting long-term economic growth in Japan.
For this reason, the Council for Tokyo Global Financial Center Promotional Activities, — establishedjointly by the Japan Securities Dealers Association (JSDA), Japan Exchange Group, Inc. (JPX), The
Investment Trusts Association, Japan (JITA) and Japan Investment Advisers Association (JIAA) —released a report in September 2015 summarizing its deliberations on Japan’s strengths, the role andissues surrounding Tokyo as a global financial center, and the steps that need to be taken by the
securities industry and the asset management industry.
The 2015 report noted the need to develop and offer more appealing financial products and services tostimulate capital markets by leveraging Japan’s strengths including its enormous amount of individual
financial assets. The report placed sharp emphasis on the major role anticipated for the asset
management industry. However, some noted that, to consider the size of its economy, Japan’s asset
management industry is inferior to those of other jurisdictions, and also that strengthening the asset
management industry would be the most effective way to develop Tokyo into a global financial center.
Considering the asset management industry’s issues outlined in the report as well as the governmentand other groups’ proposals to popularize investment trusts, the council set up the Working Group on
Asset Management (WG) under its auspices in September 2015. The WG is jointly organized by JITA,
JIAA and JSDA to deliberate, especially from the viewpoints of the securities industry and asset
management industry, on ways to strengthen the asset management industry and provide investment
products that would tie in with investors’ medium- to long-term asset building.
The Report of the Working Group on Asset Management is a summary of the discussions of the WG
during nine sessions on ways to create an environment that would strengthen the asset management
industry, improve the capabilities of asset management companies to manage assets, foster people inJapan in asset management, put into practice the fiduciary duties of asset management companies, andprovide investment products intended for medium- to long-term asset building.

II. Issues and initiatives for strengthening asset management capabilities and enhancing confidence in theasset management industry

Given Japan’s declining birthrate and aging population, it is essential to effectively manage
approximately 1,700 trillion yen of household financial assets and pension assets for post-retirement1funds. Accordingly, the asset management industry is expected to play a more significant role inproviding citizens with a variety of ways to manage assets. Currently, Japan’s asset management industry
is significantly behind the US as the data shows: assets under management of publicly offered open-type
investment trusts grew 1.94 times from December 1995 to September 2015 in Japan, significantly below
the 5.44-fold increase in the US during the same period (Reference 1). We consider that this result is areflection of such factors as a difference in the level of popularization of defined contribution (DC)pension plans, and there is considerable room for growth in Japan’s asset management industry in lightof Japan’s recent actions to reform the DCsystem and to tackle deflation.
It is also essential for asset management companies to make comprehensive efforts toward improving
their capabilities in order to provide customers with stable and superior performance for the medium tolong term while playing the role of leading Japan’s economic growth. For this reason, the WG discussed
many issues and initiatives that would improve their asset management capabilities and build trust in theasset management industry. These issues and initiatives include the recruitment, retention and training of
human resources, the fulfillment of asset management companies’ fiduciary duties, and the globalizationof investment trusts.

1. Attracting highly skilled financial professionals and setting up training facilities(1) Current state and issues
Global financial centers such as New York’s Wall Street and the City of London are home to New
York University and the London School of Economics, both of which offer the fundamental
education needed to be a professional in the finance and asset management fields. These institutions
bring the practical and theoretical worlds closer together, and have achieved major successes inprograms for producing highly skilled financial professionals with close links to industry.
In Singapore, which has been developing as a global financial center in the asset management
sector, the national strategy to provide training programs in finance and asset management including
wealth management has produced good results. This model in Singapore could be a good reference
for the development of training programs in Japan. The major features of the Singapore model fordeveloping personnel to be highly skilled financial professionals are:i)

A system to certify ability and skills (FICS),1 working together with the public and private
sectors to provide training that develops the strengths and skills of financial professionals and

1

FICS, the Financial Industry Competency Standard, was introduced in 2005 by the non-profit Institute ofBanking and Finance (IBF) made up of 200 member financial institutions, with the support of the Monetary
Authority of Singapore (MAS), the Singapore Workforce Development Authority (WDA), and private
sector companies. Now called the IBF Standards, these standards cover 10 sectors and certify 52
occupations, with programs provided by the National University of Singapore, among other institutions.
2practical experts.
ii) Establishment of educational institutions to develop personnel into professionals, andeducation and cultivation at these institutions (particularly in the wealth management sector).
iii) Collaboration and support from private-sector financial institutions for projects including
surveys and research by universities and graduate schools.
iv) Admission of foreign personnel to such educational institutions as the Wealth Management
Institute, with the aim of creating an international network of financial professionals.
In this way, Singapore has been training people with a long-term strategic approach as a major
pillar of its national strategy.
On the other hand, in Japan, training and education for financial professionals are provided
mainly by individual companies internally, while there are a number of proactive approaches at
graduate schools to train students in the financial field. However, we need a national strategy, likethe strategy in Singapore, to develop Japan into an investment management-oriented country andalso to develop integrated training programs that are useful for a broad range of financial
professionals in collaboration with the public sector, industry associations and the private sector.
In addition, similar to the examples of the US, the UK and Singapore, locating training facilities
near offices can be effective for personnel to acquire the latest academic knowledge and to apply
new knowledge to operations in their workplaces while they continuing to work.
Furthermore, it is necessary to recruit qualified educators at universities and to create outstanding
education systems because Japanese universities are lagging behind those in other jurisdictions in
the quality of research in finance and asset management. However, this will require a huge amountof money, and university budgets are constrained. Therefore, collaboration with the financial
industry will deserve consideration to create more financial programs as cases in other jurisdictions
such as Singapore indicate.

(2) Future initiatives
To attract and set up facilities to train highly skilled financial professionals, there have been
deliberations about establishing this type of facility as part of an initiative to cluster the asset
management industry within the Kabuto-cho Redevelopment Project (see IV. Issues and initiatives
for improving the business environment, 3. Clustering the asset management industry in
Kabuto-cho). Related associations should also support this project, as necessary. How to implement
the following measures should be considered when designing links with this project.
i)

Building a generic, unified training program for financial professionals that links the public
sector, industry associations, and the private sector.
3ii) Collaborating with educational institutions that are committed to finance research (forexample, by introducing a cross appointment system2 between asset management companies
and graduate schools, etc.).
iii) Creating study support programs at asset management companies (for example, introducing asystem for learning at a graduate school, etc. while working at an asset managementcompany).
iv) Training executives who are supervising asset management companies, not only portfolio
managers.
v) Operating the programs mentioned above for training financial professionals (including how
to collaborate with educational institutions, such as graduate schools).

2. Securing human resources for asset management(1) Current state and issues
The lack of human resources for asset management industry (lack of depth in the pool of capable
people) is a serious issue as Japan promotes becoming a global financial center. It is also said thatthe lack of opportunities to demonstrate skills in Japan means that talented portfolio managers areleaving the country. Other impediments to attracting talented human resources for asset
management from overseas are Japan’s living conditions, such as Japan’s burdensome tax system,
particularly income and inheritance taxes, and the lack of elementary schools and junior highschools able to provide high standards of education in English.
On the other hand, Singapore, where they successfully find talented personnel due to theacceptance of global human resources for asset management, takes a long-term approach. Based on
clearly presented policies that aim to strengthen the financial industry, several programs have been
implemented to create an international network of financial professionals. Further, using thisnetwork as part of their new national strategies is working well.
Considering the current state and the example of Singapore, etc., it would be effective to create abusiness environment that included, for example, preferential tax treatment for highly skilled
financial professionals to lure talented people back who have gone overseas and to stem the outflow
of people in the financial industry to secure global human resources for asset management, in
addition to training to be highly skilled financial professionals, as noted in 1 above. These actions
are essential for acquiring human resources from overseas for asset management companies (asset

2

A cross appointment system allows for the employment of researchers, etc. at two or more institutions,such as universities, public research institutes, or companies. This system enables them to research, develop,
and teach in ways that match their role and the distribution of effort at the respective institutions.
4management teams), and to fully use their abilities in Japan. In addition, virtually all the asset
managers already have professional experience, even when they are newly hired by the company.
There is a clear need to consider specific training for the asset management industry, such as
recruiting recent graduates.

(2) Future initiatives
It is necessary to implement the following initiatives when securing domestic and overseas highly
skilled financial professionals to strengthen asset management capabilities in the asset management
industry.
i)Every asset management company should aim to train a diverse range of portfolio managers,
and create career development and salary systems appropriate to treat and recruit
professionals.

ii) Asset management companies contemplating hiring people from overseas should create an
English language environment.
iii) For the tax system and living conditions for foreigners, work on sharing a wide ranging
awareness with the relevant authorities.

3. Asset management companies fulfilling their fiduciary duty
Asset management companies need to improve their investment and risk management capabilities
based on the nature and size of the respective investments to provide customers with medium-to
long-term stable and superior performance while catering to the varied investment needs of household
financial assets and pension funds, etc. Asset management companies need to fully demonstrate theirbest efforts when using their professional capabilities for their customers’ benefit. These professional
asset management services are requested by customers based on their trust (i.e. investment decisions aredelegated by customers) and asset management companies thus fulfill their fiduciary duty.
The WG discussed initiatives to strengthen the governance of investment trusts and increase
confidence in asset management companies to put their fiduciary duty into practice for their customers.

(1) Strengthening governance at investment trusts(a) Current state and issues
Japan’s investment trusts have developed as a powerful “tool” for the asset building of citizens.
However, given the enormity of the economy and the size of household financial assets in Japan,
asset growth by investment trusts has been slow compared with other jurisdictions. If Japan’s
investment trusts are to appeal to foreign investors as well, while promoting asset building
5

through the use of investment trusts, further discussion is required on how to increase investor
confidence and the shape of measures that contribute to investors’ long-term requirements. This
discussion should be based on examples from other jurisdictions where there have been major
developments in the investment trust market. This will require improved governance ofinvestment trusts, particularly considering the international debate in recent years, as well as thefollowing points.
i)

The need for consistency with the principles set out in the Examination of Governance forCollective Investment Schemes published by IOSCO. (In particular, a comparison of Japan’s
investment trust legislation with similar programs in other jurisdictions underscores the lackof explicit regulation of independent institutions that supervise funds.)ii) Establishing provisions within investment trust management companies that give third
parties the opportunity to express views from the perspective of a beneficiary as anindependent director, advisory board, or fund supervisory committee would help clarify thefiduciary duties of these companies. However, from an overseas perspective, an external
committee without decision-making power could be seen as unable to improve governancesignificantly and would likely not be cost effective.
iii) There is no statutory requirement under Japan’s investment trust system for an independent
monitoring institution with specific authority that has people who represent the interests ofbeneficiaries. Therefore, the existing system tends to foster distrust and raise concerns thatconflicts of interest are not being clearly managed.
iv) In addition, the absence of such an institution makes it difficult to put forward motions, evenwhen they would clearly benefit all parties.
v) Mechanisms should be considered from the perspective of beneficiaries that would facilitate
redemption or consolidation of small funds where appropriate. This would also likely
enhance the management efficiency of investment trust management companies.
vi) The investment company structure — easily understood by foreign investors and where
governance is clear from an investor’s perspective — would be effective not only for realestate investment companies but also for investment trusts that are mainly invested insecurities.
vii) Clear governance would also increase the appeal to foreign investors, particularly forprospective overseas sales of Japanese funds using the Asia Region Funds Passport (ARFP)
system.
viii) In relation to point vi) above, it will be necessary to consider the cost and placement of
personnel, as well as the practical issues, when improving the governance of investment
6

trusts. For example, adopting an investment corporation system leads to a direct increase in
the management costs of the fund, which is not easy to accomplish when funds have small
asset values, and this is a barrier to entry for emerging asset management companies.
ix) The governance of investment trust management companies and investment trusts needs tobe done through self-regulatory rules, etc. Furthermore, there needs to be a legally
empowered decision-making authority.

(b) Future initiatives
In order for investment trusts to be selected as a core method for the long-term asset buildingof individual investors, confidence in investment trusts needs to grow, and investor perspectives
need to be better reflected in product design and investment management. Therefore, JITA should
consider the following initiatives for investment trust governance to explore measures withimmediate impact for Japan’s situation, while considering examples from other jurisdictions.
i)Surveying and reporting on overseas examples that provide a reference for the governance ofinvestment trusts to boost the confidence that foreign investors have in Japan’s investment
trusts and to respond to the long-term asset management needs of domestic investors.

ii) Collecting and reporting on examples of how investment trust management companies havestrengthened governance (for example, independent directors, advisory boards, fundsupervisory committees, etc.).
iii) Considering measures to strengthen the governance of investment trust managementcompanies and investment trusts, taking into account management efficiencies, based oneach example from investment trust management companies noted in ii) above, as well as
looking at ways to further increase investor confidence, including overseas investors.
iv) Verifying the practical issues for the building and sale in Japan of funds that invest in
securities using the investment corporation system and encouraging stakeholders to make
improvements.
v) Discussing with relevant entities, such as investment trust management companies, trustbanks that act as trustees, and sales companies, on consolidating and redeeming investment
trusts while looking at ways to have a flexible response from investment trust managementcompanies to improve efficiency and respond to investor interests.

(2) Initiatives to improve trust in asset management companies(a) Current state and issues
Many financial institutions already claim to have a “customer first” management philosophy,
7yet many Japanese financial institutions, including asset management companies, are still unable
to receive an acceptable level of confidence from Japan’s citizens.
The Strategic Directions and Priorities 2015-2016 noted, while supporting private-sector
voluntary initiatives to fulfill their fiduciary duty, that it is necessary to look into whether
financial institutions handling the product development, sales, operations, and asset managementof investment trusts and savings insurance products, etc. are actually acting for the benefit ofcustomers. Some have pointed out that Japanese financial institutions, including asset
management companies, have not fully maintained public confidence and that this might indicate
the need to have more thorough fulfillment of fiduciary duty.
For example, according to Edelman’s Trust Barometer, the level of trust in the “financial
services” sector in Japan remains comparatively low (Reference 2). Furthermore, within the“financial services” sector, the lowest level of trust is given to the “investment advisors/asset
management” sector.
Trends in the UK and the US concerning fiduciary duty indicate a renewed awareness of its
importance, while moves to regulate this are also evident.
Meeting the fiduciary duty of asset management companies concerns product and performanceas well as the governance structure and transparency of asset management companies’
management (specifically, identifying elements of conflict of interest that exist with customers,
explicit preventive measures to eradicate these conflicts, etc.). Fulfilling fiduciary duties will be
impossible without simultaneously resolving both of these types of concerns. Consequently, there
are also moves to declare the intent to fulfill fiduciary duty through public declaration documents.
Opinions and examples of each company’s initiative in this area are provided in Appendix 1.
In addition, accepting fiduciary duty as an obligation to do the very best to benefit customers
indicates a close relation to the activities under the Stewardship Code. Specifically, byundertaking activities such as engagement under the Stewardship Code, an asset manager (orasset management company) will aim to increase the profits of companies in which it invests to
help improve the level of overall corporate governance. As a result, there will be improved
performance for customers as asset owners as well as a contribution to fulfilling fiduciary duty.
In addition, to meet its fiduciary duty, an asset management company should be steering in thesame direction as the customer, i.e., to maximize customer profit. Improving customer profit will
also increase the profit of the asset management company.
(b) Future initiatives
When aiming to increase confidence in asset management companies, it is necessary for asset
management companies, JIAA, and JITA to consider the following initiatives:8

i)Every asset management company should promote specific initiatives for fulfilling theirfiduciary duty, which is required to become an investment manager that earns the trust of
citizens.

ii) Because undertaking activities such as engagement with the Stewardship Code are beneficial
to customers as asset owners, JIAA should continue its Survey on the JIAA member
companies to the questionnaire for the Japan Stewardship Code (started in 2014) aimed atunderstanding the level of stated acceptance of this code by its members and the systeminfrastructure for further spreading, consolidating, and embedding the code among asset
managers and to provide co-ownership of best practices.
iii) JIAA has been convening the Expanded Corporate Governance Workshop since 2014, andbased on the requests and expectations of asset managers by customers as asset owners, willcontinue to convene this workshop in fiscal 2016 under the theme of “the role of asset
owners and the expectations that asset owners have for asset managers” aimed at increasing
customer trust. JIAA should publish the details externally.
iv) JITA should promote member compliance with the Stewardship Code and consider initiatives
to foster activities, such as appropriate engagement.

4. Globalization of investment trusts
Japan has decided to participate in the Asia Region Funds Passport (ARFP) framework and isscheduled to implement the necessary launching procedures by relevant stakeholders. Therefore, while
Japan prepares a framework to enable the sale of Japanese investment trusts to investors in participating
jurisdictions, Japanese investors will also find it easier to invest in investment trusts domiciled in the
Asian region. Using this framework, the international competitiveness of Japan’s asset management
industry will also be vitalized by its participation.
Active competition with overseas investment trusts will benefit the future development of Japanese
domestic investment trusts. The government and the industry will need to collaborate on adapting
domestic systems and practices so that Japanese investment trusts may not be exposed to a competitive
disadvantage. It will be important to review the current systems and practices flexibly for Japanese
investment trusts to be evaluated globally. From this perspective, further improvements in efficiency andstandardization will be required by reviewing current regulation and commercial practices, and byreferring to examples from other jurisdictions of operations related to the management of investment
trusts. This should also eventually lead to lower costs for Japanese investors.

(1) Promotion of the ARFP framework
9(a) Current state and issues
Investment trusts established and sold in Japan are not currently sold to foreign investors, but
Japan’s participation in the ARFP framework will make it easy to sell Japanese investment trusts
with certain criteria to investors in participating jurisdictions. Participation in this framework will
also make it easier for Japanese investors to invest in investment trusts in the Asian region.
Through such environmental changes, domestic investment trusts are expected to improve theircompetitiveness. The current Japanese investment trust system is unique compared with otherjurisdictions, and is facing challenges regarding its attractiveness overseas in its current form.
The domestic system will also need to change in line with global standards for future
development.
In addition, introducing the ARFP framework will also make it relatively easy to sell funds inother jurisdictions, while welcoming overseas competitors. Therefore, increasing thecompetitiveness of domestic investment trusts will become very important. Some people havealso recognized that flexible regulations should be adopted for the more prompt launching offunds. In addition to this, deliberations are also required to review prospectuses and marketing
materials to facilitate access by overseas investors. The international development of domestic
investment trusts and the opportunity to provide them to investors in many other jurisdictions
through the introduction of the ARFP framework will not only increase the international
competitiveness of the Japanese asset management industry, but will significantly contribute to
the clustering of the funds industry in Tokyo.
(b) Future initiatives
It will be necessary for investment trust management companies and JITA to proceed with thefollowing initiatives to provide Japanese investment trusts to investors in a wide range ofjurisdictions through the ARFP framework and to strengthen and develop the domestic asset
management industry.
i)

Investment trust management companies aiming for global development should consider
developing attractive products, toward the introduction of the ARFP framework.
Simultaneously, they should consider attractive fund structures to appeal to overseas
investors. They will also be needed to take into account conformity with other fund passports,such as UCITS, providing attractive products to a wide range of investors beyond
jurisdictions participating in ARFP.

ii) JITA will consider rationalizing and streamlining various practices surrounding investment
trusts, based on global standards. Further, these considerations will tie in with the initiatives
noted below in IV. Issues and initiatives for improving the business environment, 2.
10

Rationalizing and optimizing the middle/back-office.
iii) JITA will appeal to the Japanese authorities to review domestic regulations to maintaininstitutional competitiveness compared to other jurisdictions taking into account the trends inthose jurisdictions.

(2) Revising the NAV calculation(a) Current state and issues
The Net Asset Value (NAV) calculation for investment trusts is an important operation for thefair handling of subscriptions and redemptions for investors. The current requirements underinvestment trust legislation and trust legislation mean, in practice, that both investment trust
management companies and trust banks acting as trustees are calculating and comparing the daily
NAV.
Nevertheless, this system where both entities calculate and compare NAV is not necessarily
the same practice as in other jurisdictions. In addition, some jurisdictions also have materiality
policies covering the calculation of NAV, such as remedies based on the relative importancewhen a mistake has been made in the NAV. Therefore, NAV calculation operations are said tocreate an excessive burden for investment trust management companies when compared withother jurisdictions. On the other hand, there are also suggestions that even if calculation
operations were outsourced to optimize the operations, this would not mitigate the investment
trust management company’s responsibilities, so the operational burden is not necessarily
reduced.
While noting these suggestions, deliberation is required on the rationalization and optimizationof operations with revisions in areas such as related laws and ordinances as well as commercial
practices, taking into account of the requirement to strengthen asset management capabilities
while accurately calculating the NAV.
(b) Future initiatives
It is necessary for JITA to exchange views with experts, investment trust managementcompanies, and trust banks that act as trustees concerning methods and other aspects of the NAV
calculation of investment trusts from the perspective of maintaining and improving thecompetitiveness of the Japanese asset management industry and to sort out the issues to find more
efficiency and the viability of customary international practice.
When sorting out these issues, it will be necessary to tie-up with the initiatives noted in IV.
Issues and initiatives for improving the business environment, 2. Rationalizing and optimizing
the middle/back-office.
11

5. Promoting the FinTech business(1) Current state and issues
The need for a stronger and more sophisticated Japanese asset management industry is noted
above. First, handling issues 1. to 4. is important. Apart from this, people have said that Japan
should also deliberate on the promotion of the asset management-related FinTech business due tothe anticipated shift to IT and the overseas success that is already evident for businesses withrobo-advisors using artificial intelligence and asset management software. The use of FinTech will
promote the entry into the market of new asset management companies and foster competition forexisting asset management companies, which will stimulate the industry as a whole.
(2) Future initiatives
The Financial Services Agency established a Panel of Experts on FinTech Start-ups in April 2016
to explore ways of creating a FinTech ecosystem.
It is appropriate for related associations to promote the use of asset management-related FinTechby tying-up with initiatives by the Financial Service Agency through this panel, etc.
In addition, to assist with adopting asset management-related FinTech, consideration is being
given to incubation services, such as small offices in the Kabuto-cho Redevelopment Project, tosupport setting up asset management-related FinTech start-ups as part of the initiatives to cluster theasset management industry. (See IV. Issues and initiatives for improving the business environment 3.
Clustering the asset management industry in Kabuto-cho.)
It will be required of related associations that they provide the support necessary to consolidate
the aforementioned initiatives in that project (for example, by providing support related to theregistration and approval procedures in accord with the Financial Instruments and Exchange Act.)

III. Issues and initiatives for providing products that contribute to medium- to long-term asset building

In Japan, cash and deposits account for a high proportion of individual financial assets. However,since Japan is expected to undergo decline and further aging of the population, individuals will need tobuild assets more stably through medium- to long-term and diversified investments. In order to meettheir needs, asset management companies and sales companies will also need to fulfill their respectiveroles: asset management companies creating products that contribute to medium- to long-term asset
building, and sales companies providing these products to investors in a suitable manner.
In addition, developing and providing products that contribute to medium- to long-term asset building
will lead to an appropriate supply of risk money and market depth, achieving a more vibrant market and12sustainable economic growth in Japan.
In view of the above, the WG discussed the issues and measures for providing products that willcontribute to medium- to long-term asset building for investors.

1. Promoting the development and sales of products that contribute to medium- to long-range asset building(1) Current state and issues
Investment trusts (including ETFs and REITs) can be considered the core vehicle for medium- tolong-range investment as well as diversification for retail investors. Investment trusts can also be
considered as appropriate products for investment by retail investors, as the risk can be reduced
through diversification, efficiencies can be gained by pooling funds, and the expertise of specialists
can be utilized even for small amounts of investment.
Ideally, investment trusts should be tailored to long-term investment needs, but investment trust
management companies may have developed products with short-term appeal to investors, andother companies may have followed this trend. This may also have reduced the scope of available
products to investors. Investors have diverse needs, and while there is scope to debate the validity of
this, investment trust management companies should further clarify their approach for long-term
investment by creating focused products that provide medium- to long-term profit for customers, inorder to boost investor confidence in investment trusts, and by managing products that contribute
more to the medium- to long-term asset building of individuals.
In selecting investment trusts, sales companies gather information, including customer needs,
from wide-ranging sources. They are increasingly taking note of the objective quantitative andqualitative assessments institutions when independently selecting products of their affiliatedcorporate groups (a shift to an open architecture). In addition, while there is a clear need to promote
diversified long-term installment investments to contribute to the medium- to long-term asset
building of households, employee training and revisions to performance assessments havereportedly led to an increase in the number of installment accounts for investment trusts and haveextended the term for which investment trusts are held.
Therefore, there are signs of a transition to a business model more focused on asset balances
based on medium- to long-term asset building. Initiatives to promote sales of products that
contribute to medium- to long-term asset building have begun. However such initiatives appear to
be limited so far, and tend to focus on sales of a limited group of top-selling products. Moreattention is required in relation to the idea that an open architecture of systems in distributing
investment trusts will be called for to handle a diversified range of products.
On this point, it would be better if sales companies exercised greater ingenuity and planning in
13

relation to the following issues, for example to promote the sales of products that contribute tomedium- to long-term asset building of households, particularly the working generation.
i)More in-depth understanding of customer characteristics and needsii) Changes in ways of thinking of employees and a revision of the personnel evaluation system(to incentivize the promotion of medium- to long-term investment)iii) A more finely tuned approach to customers (explanations when soliciting, follow-up, holding
seminars, etc.)iv) Selecting investment trusts that reflect customer needs (select based on an objective
assessment and not sticking to a keiretsu corporate group, etc.)(2) Future initiatives(a) Initiatives at investment trust management companies
When forming investment trusts, it is appropriate for all investment trust managementcompanies to first consider the customer’s needs and potential benefits, and then to provide
products that contribute to the medium- to long-term asset building of customers from a range of
products that cater to those various needs using the company’s own distinctive advantages tomake long-term investments. In addition, when developing investment trust products it isdesirable to have in-depth verification of whether the characteristics of the products and the rates
and the system of compensation for managing the investment are appropriately structured.
(b) Initiatives at sales companies
Within sales companies, there are already examples of initiatives concerning the issues
outlined in (1) above, as set out in Appendix 2.
All sales companies are requested to continue deliberations to provide products which
contribute to medium- to long-term asset building, while referring to the WG arguments andrepresentative examples.
The JSDA will deliberate on measures it can take to assist with the voluntary initiatives of eachsales company and to share each company’s initiatives across the industry.

2. Provide more information to customers(1) Current state and issues
To promote investment in products that contribute to medium- to long-term asset building,information about the economic environment and market trends that contribute to investment
decisions as well as any special characteristics, risks, and fees for products needs to be provided tocustomers in a timely and appropriate way, taking into account the customer’s knowledge and14

experience. In particular, it is important to recognize that it is hard to objectively assess thecharacteristics and distinctive traits of some financial products, particularly in comparison withother products. There is also a tendency to excessively focus on dividends and the costs and/or
commission associated with financial products. This focus might result in an assessment based
primarily on a comparison of costs and dividends instead of the investment policy and investment
techniques. Consequently, attention needs to be paid to this tendency, and more efforts should bemade to provide information on the financial products to prospective investors.
In the past, many improvements have been made to legal disclosure documents and prospectuses
for investment trusts. Revisions have been made not only to the content of the disclosed information
but also to the use of charts and terminology for easier understanding by investors. In addition,
investment trust management companies have continued to boost their efforts to provide
information to investors as well, such as issuing voluntary monthly updates on the status ofinvestments that are more frequent than those legally required. These efforts have improved theusefulness of the information on investment trusts disclosed to investors.
Nevertheless, it is important to promote initiatives that make it easier to understand the merits ofinvestment trusts, and the usefulness of long-term installment investments and diversified
investment to broaden the investor base and foster long-term investment by people with limited
investment experience. In this regard, investment trust management companies need to make further
improvements by making an effort to provide easily understood explanations by further simplifying
terminology and by using charts, while actively disclosing their investment policies and investment
philosophy.
In addition, arrangements are also needed that make it easy for investors to gain a real sense of
the impact of an investment, by providing performance information related to individual investment
trusts on the JITA Web site. This Web site may be improved to allow investors to objectively
understand the usefulness of long-term installment investments, for example, by proving
hypothetical calculations for an investment with a fixed monthly installment amount.
Although sales companies are becoming imaginative and creative in relation to the content,
design, and format used to provide information to customers, there is still scope for improvement tocreate explanatory materials that are easy to understand from a customer perspective, and to provide
information at the level of customer knowledge and experience. In particular, more tools anddeliberation are required on how to provide information to boost the medium- to long-term asset
formation of people with limited investment experience. This includes providing materials withsimplified terminology from a customer perspective, easy-to-understand explanations throughillustrations, easy-to-understand disclosure of the fees on investment trusts, simplified explanations
15

about the usefulness of long-term installment investments and diversified investments, andcomparative information for investment trusts (including, for example, introducing suitableproducts for long-term installment investments, NISA, and Junior NISA).

(2) Future initiatives(a) Initiatives from investment trust management companies
It would be appropriate for investment trust management companies and JITA to take theinitiative to make information disclosure on investment trusts more useful for investors.
i)Every investment trust management company should use methods in prospectuses and otherdocuments that are easy for investors to understand in relation to the terminology and othercontents.

ii) JITA should introduce procedures at the Investment Trusts Comprehensive Search Librarythat not only allow for the hypothetical calculation of performance for past fixed investments
at a set point in time, as is currently provided, but also introduce tools to calculate theperformance for fixed amount monthly installment investments. In addition, JITA should
request that all members provide a link to the association’s Web site to expand the use of theInvestment Trusts Comprehensive Search Library.
(b) Initiatives at sales companies
Some sales companies that are already aware of the issues outlined in (1) above are preparing
easily understood explanation materials with charts, easy-to-understand explanations about the
products, and various investment-related systems with handbooks, etc. for people with little or no
investment experience. Sales companies should continue to deliberate and devise ways toimprove the quality of the information provided for customers, while referring to the discussions
and examples introduced at the WG.
The JSDA will deliberate on measures that it can take to assist with the voluntary initiatives ofsales companies and to share these initiatives across the industry.

3. Promoting the use of defined contribution (DC) pension plans, expanding and perpetuating the NISA and
Junior NISA tax exemption systems(1) Current state and issues
As noted in 2. (1) above, investment trusts are considered the main effective method that enables
individuals to invest in the medium- to long-term and with diversified portfolios.
In fact, investment trusts are more actively used as such a method in the US and Europe than inJapan; investment trusts account for approximately 13 percent of household financial assets in the16US, more than twice the level in Japan.
This higher proportion of investment trusts in the US and Europe has arisen partly as a result ofpreferential tax treatment for individual investors. For example, approximately 45 percent ofoutstanding investment trusts in the US have been managed through tax-favored pension systems,
i.e., Individual Retirement Accounts (IRAs) and workplace DC plans (Reference 3). This figuresuggests that many Americans have purchased investment trusts through investment systems
designed for individual investors and that these systems have in turn helped to develop theinvestment trust market at the same time. Furthermore, the UK and Australia have systems thatobligate companies to contribute to the private sector pensions of their employees, and thesesystems function as a major contributor to the expansion of the investment trust market.3
In Japan, while asset building environments have been improved, further work needs to be done
to improve systems for asset building4 to ensure that they are be more convenient for investors andthat sales companies can promote initiatives to popularize these systems by investing moremanagement resources.
Therefore, Japan should also aim to promote the use of DC plans as well as expand andperpetuate the NISA and Junior NISA tax exemption systems (increase in the annual upper
contribution limit, perpetuation of tax exemption and account opening periods, etc.) .
The following initiatives are examples that are likely to promote the expansion of NISA and
Junior NISA and the use of DC pension plans.
i)Expand, simplify and perpetuate the NISA and Junior NISAii) Popularize workplace NISAiii) Abolish the special corporation tax on corporate pensions (DC plans, etc.)iv) Lift the cap on the level of contributions for DC plansv) Promote the inclusion of risk products, such as balanced-type investment trusts, as adesignated investment method for DC plansvi) Popularize individual DC plans (e.g. expand the base of financial institutions in which theseplans are available, etc.)(2) Future initiatives
Promote the following initiatives to expand NISA and Junior NISA, popularize these systems and3

In the UK, the automatic participation DC plan, the one targeting all business owners, began with thegovernment’s National Employment Savings Trust (NEST) in October 2012. In Australia, since 1992
business owners have been required to contribute to employees’ accounts of superannuation funds(private pensions) from their payrolls.
4
Examples of further system improvements could include making NISA and Junior NISA perpetuallyavailable and allowing for switching, as well as lifting the cap on contributions to DC plans.
17

stimulate the use of DC plans.
(a) Industry initiatives
The tax reform requests from the securities industry and the asset management industry forfiscal 2017 include: expanding NISA and Junior NISA, simplifying and perpetuating thesesystems, abolishing the special corporation tax on DC plans, and lifting the cap on contributions
to DC plans.
Since last fiscal year, the JSDA has advertised NISA and Junior NISA in TVCM (televisioncommercials) and in newspaper ads, etc. The JSDA will continue these advertising activities
during fiscal 2016 to make Junior NISA more popular among investors, to increase their interestin the NISA and Junior NISA, and to deepen their understanding of these systems.
The JSDA will also continue to work with JITA in a working group that supports individuals’
independent efforts to build assets, deliberating on issues to popularize and promote workplace
NISA and DC plans (particularly individual DC plans).
(b) Encouraging the government
The amended Defined Contribution Plan Act was enacted in May 2016. Following thisfavorable situation, the JSDA and JITA should both continue to encourage the relevant
government authorities to deliberate on the following topics for the accomplishment of the DC
plans’ original goal so that they help participants build sufficient assets for their post-retirement.
・Setting an appropriate standard to select default investment methods that contribute to asset
building, instead of the method of guaranteed principal products,
・Discussing the current limits on the number of investment products designated for the plans
and improving the utility of the plans for participants, and・Easing the prohibition on simultaneously holding two posts for asset management operationsof DC plans and product sales operations to popularize and promote individual DC plans(i.e., expanding the base of financial institutions in which these plans are available.).

4. Raising financial literacy(1) Current state and issues
To further promote individuals’ asset-building, it is necessary to raise financial literacy formaking an appropriate choice of financial products with varying risk and returns, including an
understanding of the effectiveness of diversified investment (diversification of asset class as well as
timing) and long-term investment.
According to the National Survey of Securities Investment conducted in 2015, approximately 40
percent of the respondents who answered that they feel no need to invest in securities chose “lack of18

knowledge concerning finance and investments” as a reason for their answer. Furthermore, only
11.8 percent of all respondents recognized that investment trusts can reduce investment risks
through diversified portfolios, and 6.5% of respondents knew a method of cumulative investment
through regular fixed contributions to investment trusts. These responses highlight the lack ofunderstanding of the characteristics and methods of investment trusts (Reference 4).
In addition, in 2013, the Study Group on the Promotion of Financial and Economic Education,
for which the JSDA acts as the secretariat, undertook a Comprehensive Survey of Financial andEconomic Education in Japan’s Junior High and High Schools surveying teachers of junior highschool social studies, technology and home economics, as well as high school civics, home
economics, and commerce. The survey highlighted several issues: the teachers themselves felt alack of expertise, recognized the students’ difficulties in linking the lessons to their actual lives
since the lessons focused mainly on understanding terminology and systems (Reference 5). As thissurvey shows, it is hard to say that people in Japan have adequate financial literacy despite current
initiatives to promote literacy (Reference 6). Further expansion of financial and economic educationis required.
On this point, the following are considered as initatives that we should further work on to
improve citizens’ financial literacy.
i)

Expand financial and economic education in schoolsii) Expand the frequency and scale of lectures and seminars on asset management for university
students and working adultsiii) Develop financial and economic education that uses IT, such as e-learning and Web content,
etc.

(2) Future initiatives
The JSDA is supplying educational materials to the field of education, dispatching lecturers,
holding seminars, and advertising these activities via various mediums (Web sites, printed media,etc.). The JSDA will continue to expand these activities, and also work on the following initiatives
while linking with relevant institutions to promote a better understanding of diversified investments
and long-term installment investments, and calling attention to the usefulness of these methods.
(a) Expand financial and economic education in schools
Having ordered in November 2014 by the Minister of Education, Culture, Sports, Science andTechnology, the Central Council for Education at MEXT (Ministry of Education, Culture, Sports,
Science and Technology) has been deliberating on the amendment of the government curriculum
guidelines.
19

On the other hand, JSDA compiled a Request for Further Expansion of Financial andEconomic Education in Junior High Schools and High Schools at the Study Group on the
Promotion of Financial and Economic Education, and submitted it to the Minister in September
2015. This request asks for the improvement of education at junior high schools and high schools
to help students understand the significance of securities investment and the necessity for asset
building. The JSDA will encourage related stakeholders to support this request.
(b) Expand projects for holding seminars and sending lecturers for university students and working
adultsThe JSDA plans to expand its project to organize seminars and send lecturers in an initiative toboost financial literacy by catering to the various needs with the new lecturer dispatch service(financial and securities instructor system) and implementing seminar projects nationwide.
(c) Enhance Web content and disseminate more information
The JSDA plans to improve the service for disseminating information to school teachers andenhance Web content (video content and apps, etc.) in order to complement the activities
mentioned in (b) above and to enhance the financial and securities knowledge of a wide range of
people.

IV. Issues and initiatives for improving the business environment

Changes in the social environment, such as the falling birth rate and aging population, have increased
the need for individuals to build assets through their own efforts. In addition, major changes in themarket environment have stimulated institutional investors’ demand for investments in assets withvarious risk characteristics, such as investments in bonds with credit risks and alternative assets. To meetthese demands, the asset management industry in Japan is required to be more diversified andsophisticated. Currently, the numbers of asset management companies in Japan and their employees are
smaller than those in other jurisdictions. In addition, some argue that talented portfolio managers areleaving Japan or that such managers in other jurisdictions are not coming to Japan.
Given this current situation and arguments, it is necessary to increase the number of players in theindustry in order to create an environment that encourages the players to work hard with various
investment philosophies and meets the needs of investors.
Therefore, the WG discussed issues and means to improve the business environment and to strengthen
the asset management industry, aiming at attracting talented human resources for asset management anddomestic and foreign asset management companies to the Japanese market.

20

1. Promoting the entry of new asset management companies, etc.
(1) Current state and issues
To increase the number of players in the asset management industry and promote competition
within the industry requires not only the cultivation of domestic asset management companies andhuman resources, but also attracting foreign asset management companies and talented humanresources for asset management to Japan.
Nevertheless, the business characteristics of the asset management industry include intangible
assets such as credit and branding that represent the “track record” of a product. So, even if a good
product is created, initial distribution is difficult and there is the structural burden, such as theadministration and the time it takes to acquire a license, etc. In addition, the results of a survey offoreign asset management companies with an interest in the Japanese market indicate that they see
preferential tax systems, business opportunities, a simple entry process, and low administrative
costs as important factors when entering the market.
The WG recognized the need to create matching opportunities for institutional investors, such as
Japanese public pensions, etc., with foreign asset management companies to provide business
opportunities for emerging domestic and foreign asset management companies and highly skilled
financial professionals. The WG also noted the need to create a system similar to the Emerging
Managers Program, in which foreign pension funds put priority on allocating part of their funds toemerging investment managers, and the need to improve the environment to enable sales ofinvestment trusts through various channels. In addition, there is a view that a more streamlined
entry process is required, including a clearer overall picture of the application procedures and therequirements for registration/approval, as well as prompt, one-stop support in English. Further, there
was the opinion that outsourcing of middle/back-office operations by asset management companies
needs to be promoted and that a standardized platform for these operations is required to reduce
administrative costs.

(2) Future initiatives
JITA, JIAA, and JSDA should work toward further promotion of entry into the Japanese market
by domestic and foreign asset management companies, in collaboration with the initiatives of the
Financial Services Agency, which is now deliberating on the establishment of a single counter forforeign asset managers and owners,5 and of the Tokyo Metropolitan Government, which plans to
5

The Financial Concierge Service is an English language service that will be launched by the Tokyo
Metropolitan Government in collaboration with the Financial Services Agency, to provide foreign
finance-related companies with support for their overall businesses. (See Japan Revitalization Strategy
2016, below.)21

launch the Financial Concierge Service in 2016 as well as the Tokyo One-Stop Business
Establishment Center.
As part of this service, JITA, JIAA, and JSDA will collaborate with the deliberative committee6
scheduled to be set up by the Tokyo Metropolitan Government, The Financial Services Agency, andprivate sector operators, to share issues concerning the entry of new asset management companies
indicated by the WG, and to work to resolve the issues around promoting the entry of new asset
management companies.
In addition, it is appropriate for the JIAA to conduct a study of the Emerging Managers Program,which has been introduced at public pension funds, etc. in the US, while sharing information among
related parties to provide business opportunities to domestic and foreign emerging asset
management companies and highly skilled finance personnel.

2. Rationalizing and optimizing the middle/back-office(1) Current situation and issues
Asset management companies have operations that contribute to the medium- to long-term asset
building of customers by planning, establishing, investing, and providing solutions for investment
methods and products. These capabilities and product performance are their core business and maincompetitive areas. This core business is supported by other operations such as compliance, risk
management, and accounting for investment trusts and investment advisory, to execute and develop
effective systems. In Japan, a business environment for outsourcing the middle/back-office
operations of asset management companies may not have been fully developed, so the barriers toentry may still remain higher in Japan than in other jurisdictions. In addition, by improving theenvironment for outsourcing middle/back-office operations, existing asset management companies
would be able to focus their management resources on their primary business, which would
contribute to improving asset management competencies and competitiveness. In addition, theresults of a survey of foreign asset management companies indicated that self-regulatory rules andsystem manuals are virtually all in the Japanese language, which makes it hard for asset
management companies from abroad to assess relevant operational costs.
The WG noted the following reasons for the lack of progress in outsourcing middle/back-office
operations for asset management companies in Japan.
i)

For outsourcing middle/back-office operations, there are no clearly stated businessregulations concerning operations that can be outsourced, the method of supervising the

6

The Japan Revitalization Strategy 2016 indicates that this committee will outline the measures for theimmediate future to establish Tokyo as a global financial center within the current year.
22contractor, and the terms and conditions for the contractor.
ii) There is no standardization within the asset management industry for middle/back-office
operational flows.
iii) As a result of ii), outsourcing is comparatively expensive.

(2) Future initiatives
To rationalize and optimize the middle/back-office operations, it will be necessary to pursue thefollowing initiatives.
i)

Asset management companies should deliberate on possible measures to outsource theiroperations and issues in doing so, to rationalize and optimize company’s own operations.

ii) Based on companies’ deliberations of i) above, JITA should survey external contractors, suchas trust banks and investigates the standardization of middle/back-office operations for asset
management companies, identifying the obstacles, and implementing improvements.
iii) JIAA and JITA will take appropriate actions, including collaborating with the deliberative
committee scheduled to be set up by the Tokyo Metropolitan Government, Financial Services
Agency, and private sector operators, and sharing their findings on those issues mentioned
above.

3. Clustering the asset management industry in Kabuto-cho(1) Current state and issues
The Council for Town Planning to Create Investment7 has discussed future direction of theredevelopment in the Nihonbashi Kabuto-cho district,8 and proposed the concept that the district
should contribute to stimulating the asset management industry in Japan. Based on this proposition,
the project to provide venues that support start-ups and developments of the asset management
industry in this district has become part of the projects for making Tokyo a global financial center.
The project was also nominated as an urban redevelopment project in the national strategic special
zone.
From the perspective of strengthening the asset management industry in Japan, it is considered7

The office of the Council for Town Planning to Create Investment and Growth (chaired by Toyota Motor
Corporation senior advisor Hiroshi Okuda) was set up within Heiwa Real Estate Co., Ltd. in December
2014. Its mission is to carry out neutral, effective redevelopment to attract people and produce investments
and growth to help revitalize the Kabuto-cho and Kayaba-cho districts in Nihonbashi.
8
The national government and the Tokyo Metropolitan Government are said to be taking the initiative forstrengthening the effective use of the national strategic special zone and enhancing promotion policies
under Japan Revitalization Strategy 2016 to make the area close to Eitai Dori, which includes the
Kabuto-cho district (Tokyo Financial Street), a showcase for gathering by 2020 highly skilled people fromoverseas who are working in finance.
23

significant that clustering asset management companies and personnel in a specific area will bring
together information and lead to the creation of an ecosystem.
Tackling the issues mentioned in 1 and 2 of Chapter II, and 1 and 2 of this chapter* with thenational government and the Tokyo Metropolitan Government will likely lead to the clustering of
the asset management industry in the district and the formation of an ecosystem.
* Chapter II. 1. Attracting highly skilled finance personnel and setting up training facilities
2. Securing human resources for asset management
Chapter IV. 1. Promoting the entry of new asset management companies, etc.
2. Rationalizing and optimizing the middle/back-office(2) Future initiatives
The Council’s project includes the establishment of the following infrastructures in the district.
i)

Facilities for clustering emerging asset management companies, etc.

ii) Incubation offices to assist with the start-ups and commercialization of asset managementbusinesses and FinTech related to asset managementiii) Training centers for fostering highly skilled peopleiv) Facilities where investors and corporations can hold discussions and interactv) An attractive living environment for talented financial personnel from overseas.
All of the above are the initiatives the WG considers necessary for the clustering of the asset
management industry.
Related associations should provide support, as necessary, to consolidate the above initiatives forthis project.

V. Conclusion

This report summarizes the results of the WG’s deliberations on measures to provide investment
products that would tie in with investors’ medium- to long-term asset building and to strengthen theinternational competitiveness of Japan’s asset management industry. As noted earlier, reinforcing theasset management industry is considered an important element of making Tokyo into a global financial
center, and the importance of reinforcing this industry is growing with the increased requirement for
asset building, given Japan’s falling birth rate and aging population as well as increased expectations forcurbing deflation.
Considering the results of the WG’s deliberations, we hope that people in the securities and asset
management industries will make efforts and take steady actions to overcome these issues and strengthen
24the asset management industry. On the other hand, as the WG discussed, the scale of Japan’s asset
management industry remains small, compared to the size of Japan’s economy, due to multiple factors,
and some issues are too far beyond the ordinary course of business for the private sector alone to tackle.
Therefore, we strongly recommend that initiatives to strengthen the asset management industry beundertaken under Japan’s national strategy because such initiatives are expected to contribute toproviding risk money to growing companies and in turn to steady asset building by citizens in Japan.
Some issues in this report could be solved after comparatively short deliberation, but others will
require much longer deliberation. We expect that investment trust management firms, asset managementcompanies, sales companies (securities companies, banks, etc.), and related associations will proceedwith the projects through definite initiatives under the leadership of the secretariats (JITA, JIAA andJSDA) for the WG, while collaborating, as necessary, with both the national government and the Tokyo
Metropolitan Government.

25

(Appendix 1)

The main opinions and examples of initiatives concerning asset management company fulfilling theirfiduciary duties

1. Products and performance
・Several elements all need to work together: improved performance from a medium- to long-term
perspective; products developed to suit customers’ specific needs; accountability for productinvestment performance; and enhanced, more easily understood reporting. In particular, for
improving performance it is important to have better returns for medium- to long-term investments
as well as to train more diverse portfolio managers, given the current negative interest rates.
・For product development, there needs to be specific products that contribute to medium- to long-term
asset building, while also considering how to attract the working generation that needs asset
building but have limited investment experience to invest in investment trusts.
・It will be very hard for beginners to participate unless a lot of products are created with easily
understood, identifiable risk.
2. Governance and transparency
・Asset management companies need to think deeply about ways to objectively explain and convey tocustomers that they manage their organizations by prioritizing customers’ profits. Japanese asset
management companies often have strong keiretsu corporate group connections with financial
institutions and customers assume an asset management company has a keiretsu relationship.
Therefore, there needs to be an easy-to-understand explanation of how any conflict of interest will
be managed.
・Even asset management companies have adopted personnel systems based on Japanese-style
employment, and there needs to be a way to explain how this actually benefits customers.
3. Verification through a fiduciary duty declaration, etc.
・A recent initiative has made it possible to verify, through a company’s own fiduciary duty
declaration, whether or not customer profits are being given a high priority and whether or not theorganization objectively prioritizes customer profits. To be specific, the following four factors need
to be verified.
(1) Management of conflict of interest(2) Reasonable remuneration(3) Performance evaluation(4) Method of governance26

(Appendix 2)
Examples of initiatives at sales companies to promote the sales of products that contribute to medium- tolong-term asset building

1. A more in-depth understanding of customer attributes and needs

Use a consultative sales style, understand the customer’s life plan and asset situation using
consulting tools, and then indicate a model portfolio that matches the customer’s capacity for risk,etc.

Conduct surveys to boost the level of customer satisfaction and provide recognition to the employeewith a high level of customer satisfaction.

2. Change employee thinking and revise personnel evaluation systemPromote improvements in employee awareness through training, etc. to entrench a consultative sales
style in the workplace as well as revise the personnel evaluation system by introducing mechanismsthat evaluate the long-term performance and rate of change in the assets under management.

3. More finely tuned approach to customers
Link up with specialists to provide proposals and solutions that consider not only a customer’s
financial assets, but all of his or her assets.



Take a finely tuned approach to customers, such as improving marketing materials and asset
management materials as well as by holding seminars on themes that are familiar to customers.

4. Select investment trusts that reflect customer needs (based on an objective assessment and not sticking toa keiretsu corporate group)Be aware of promoting an open architecture, while confirming the customer’s needs and information
about asset management companies and products, to make a step-by-step selection using due
diligence from research companies as well as discussion and decisions of investment trusts that
focus on the needs of customers that assume medium- to long-term investments.

27

Reference 1<Net assets of investment trusts in the US and Japan>(trillion yen)

1,800
1,600
1,400
US
米国

1,200

Japan
日本

1,000
800

600

End of 2015
US: 1,675.54 trillion yen
Japan: 97.76 trillion yen

400

200

1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015

0
Source: The Investment Trusts Association, Japan, US Investment Company Institute (ICI)
US investment trust balance converted at a rate of US$1 = 107.05 yen

Reference 2<Trust in Japanese industry>
80%

Technology

75%

Automobiles

70%

Pharmaceutical

65%

Food

60%

Telecommunications

55%

General consumer goods

50%

Financial services
Energy45%
2016
Financial services:
47％

40%
35%
2012

2013

2014

2015

2016
Source: 2016 Edelman Trust Barometer

32

Reference 3<Proportion of IRA and employment defined
contribution plans in the US investment trust market>

Source: US Investment Company Institute (ICI)(*) IRA: Balance of individual retirement accounts that are defined contribution plans for US individuals

Reference 4<Degree of recognition of investment trust>
0

10

20

They are invested and managed by
専門家が投資・運用するもの
management by specialists

40

50

60

70

(%)

39.7

There are bond investment trusts and equity

公社債投資信託と株式投資信託がある
investment trusts

12.4

There are investment trusts that are listed in

上場株式と同様の上場投資信託がある
the same manner as listed companies

6.2

Risk can be reduced through diversified

分散投資でリスクを減らすことが可能
investment

11.8

There is also a method of cumulative
定時定額積立の累積投資方法もある

6.5

investment through regular fixed contribution

Revision of the items listed in the「運用報告書」の記載事項を見直し“Investment report”

1.1

Introductionof a system of regular notification
累積損益の定期通知制度が導入
of cumulative profits and loss

1.9

I do not know any of the above
上記の中で知っていることはない
No response
無回答

30

56.5
0.8

N=7,000
N=7,000(Multiple responses)

Source: Japan Securities Dealers Association “National Survey on Securities Investment”

33

Reference 5<Results of status survey of financial and economic
education in Japan’s junior high and high schools><Difficulties encountered when giving lessons>No response

Other

Difficult to obtainunderstanding ofparents or guardians

School unused toteaching the subject

Little opportunity forteachers to obtaintraining

Low level of interest
among students

No appropriate
teaching material

Changes in the actual
economy are toocomplex

Not enough lesson
time

Lack of expertiseamong teachers

Difficult for students
to understandNumber of surveys

4462

48.9

48.4

44.9

37.8

26.6

25.7

14.0

5.2

0.2

1.0

1.6

By school type

Junior High School

3085

49.9

49.4

44.4

38.9

28.3

22.4

13.6

5.4

0.3

0.9

1.6

High School

1487

46.3

45.9

46.2

35.0

23.2

33.0

14.9

4.5

0.1

1.1

1.8

Junior High Schoolsocial studies

1732

56.2

42.1

45.2

48.0

23.0

19.1

10.7

5.1

0.3

0.9

1.5

Junior High School
technology & home
economics

1371

41.8

58.4

43.5

27.5

35.0

26.6

17.2

6.0

0.3

0.9

1.6

High School civics

612

52.9

36.3

47.9

40.4

22.1

33.0

11.8

5.6

0.3

0.7

2.0

High School home
economics

738

40.1

54.7

48.5

30.4

24.3

31.8

16.4

3.3

-

1.2

1.6

High Schoolcommerce

140

50.0

40.7

27.1

36.4

22.1

38.6

20.7

6.4

-

2.9

2.1

By subject responsibility

Overall

Source: Japan Securities Dealers Association “Comprehensive Survey of Financial
and Economic Education in Japan’s Junior High and High Schools”<Problems with the study content of financial and economic education>
There is little practicalknowledge, such as typesof interest rates orfinancial products and therelationship between risk
and return

Difficult for students togain any basic skills
needed to be independent,such as managing income
and expenses andsavings

No response

Financial and economic
education is limited to
specific grades andtimeframes, making it
impossible to haveongoing studies in thesubject

Other

Students learn theinformation, but find it
difficult to pick up
abilities or attitudes

Do not see any
particular problems

Focus on understanding
terminology or systems
makes it difficult for
students to relate lessons
to their actual lives

55.0

40.9

31.6

28.3

22.2

5.5

3.1

2.3

By school typeNo. of surveys

3128

Junior High School

2097

55.6

42.1

32.3

24.7

20.7

6.0

2.7

2.3

High School

1110

53.7

37.4

30.9

35.0

24.8

4.1

3.8

2.3

Junior High Schoolsocial studies

1266

58.0

39.1

33.4

30.7

20.5

6.7

2.4

1.3

Junior High School
technology & home
economics

845

52.3

46.4

30.5

15.9

20.9

4.9

3.2

3.9

High School civics

428

61.9

34.6

31.8

39.7

21.3

3.7

3.7

1.6

High School home
economics

575

47.3

40.7

31.1

30.4

28.5

3.5

3.7

2.4

High School commerce

109

55.0

31.2

25.7

42.2

20.2

9.2

4.6

3.7

By subject responsibility

Overall

Source: Japan Securities Dealers Association “Comprehensive Survey of
Financial and Economic Education in Japan’s Junior High and HighSchools”

34

<Outline of assistance provided by JSDA for financial and economic education (for schools and students)><Outline of assistance provided by JSDA for financial and economic education (for general public)>

35

Reference 6

Reference 7

Outline of the Working Group on Asset Management
September 9, 2015
Council for Tokyo Global Financial
Center Promotional Activities

1.

Purpose and objective
The Working Group on Asset Management (hereinafter “WG”) is established under theCouncil for Tokyo Global Financial Center Promotional Activities (hereinafter, the“Council”) for cross industry deliberation by the securities industry and asset
management industry of measures to provide investment product that would lead tomedium- to long-term asset building for investors while aiming to strengthen theinternational competitiveness of Japan’s asset management.
2.

Matters for deliberation
The WG will deliberate on the following matters.


Creation of an environment to strengthen the asset management industry



Increasing the investment capacity of asset management companies and train
human resources for asset management

3.

Practical application of fiduciary duties by asset management companiesSupply investment products for medium- to long-term asset building



Other

Composition and administration(1) The WG comprises market professionals, high profile executives in market-related
institutions, and experts.
(2) WG members are appointed by the Chair of the Council.
(3) The manner of WG’s operations are prescribed by the Chair of the Council.
4.

ReportThe status of deliberations within the WG shall be suitably reported to the Council.

5.

Secretariat
The administrative operations of the WG shall be handled by the Japan Securities

Dealers Association, the Investment Trusts Association, Japan and the Japan Investment
Advisors Association.

36

Reference 8
The Working Group on Asset Management – Member List
June 2016

Chair

Sadakazu Osaki

Head of Research, Nomura Research Institute, Ltd.

MemberJunichi Aizawa

Senior Executive Managing Director, Daiwa Securities Co., Ltd.

MemberSatoshi Arai

Senior Corporate Managing Director, Nomura Securities Co., Ltd.

MemberYugo Ishida

Representative Director and CEO, Lazard Japan Asset Management K.K.

MemberKazutoshi Inano

Chairman and CEO, Japan Securities Dealers Association

MemberYoichiro Iwama

Chairman, Japan Investment Advisers Association

MemberAkiyoshi Oba

MemberSusumu Okano

President & CEO (Representative Director), Tokio Marine AssetManagement Co., Ltd.
Senior Executive Managing Director, Daiwa Institute of Research Ltd.

MemberYuri Okina

Vice Chairman of the Institute, The Japan Research Institute, Limited

MemberToshihiko Kato

General Manager, Financial Consulting Dept., Sumitomo Mitsui Banking Corporation

MemberTakashi Saruta

Executive Managing Director, Nomura Asset Management Co., Ltd.

MemberTakumi Shibata

Representative Director, President and CEO, Nikko Asset Management Co., Ltd.

MemberTakeshi Shimizu

Partner, PwC Consulting, LLC

MemberMakoto Shirakawa

Chairman, The Investment Trusts Association, Japan

MemberHiroyuki Tanaka

Executive Vice President, Mitsubishi UFJ Kokusai Asset Management Co., Ltd.

MemberTakuhide Hagino

President, Pictet Asset Management (Japan) Ltd.

MemberYoshio Hishida

Managing Executive Officer, Sumitomo Mitsui Trust Bank, Ltd.

MemberPhilippe Avril

CEO and Representative Director, BNP Paribas Securities (Japan) Limited

MemberNoriyuki Yanagawa

Professor, Graduate School of Economics, University of Tokyo

MemberKunio Yokoyama

President & CEO, Sumitomo Mitsui Asset Management Co., Ltd.

MemberTakashi YoshimuraManaging Director, Head of Compliance for Goldman Sachs Japan

ObserverFinancial Services Agency
37

Observer

International Bankers Association of Japan

ObserverTokyo Metropolitan Government

ObserverJapan Exchange Group

ObserverHeiwa Real Estate, Co., Ltd.

Note 1. Yoshitsugu Yamada, Mizuho Bank, resigned as a member of the WG effective
March 31, 2016. Toshihiko Kato, Sumitomo Mitsui Banking Corporation, wasappointed as a member effective April 1.
Note 2. Kunio Yokoyama, Sumitomo Mitsui Asset Management, resigned as a member ofthe WG effective June 27, 2016.

21 Members(Honorifics omitted: Japanese alphabetical order)38

Reference 9

Past meetings of the Working Group on Asset Management

Meeting DateFirst
meeting

October22, 2015

Agenda
1. The operations of this Working Group
2. Creation of the business environment for asset management(1) Tokyo Financial Street concept utilizing the National Strategy
Special Zone
Speaker: Hiroyuki Yamamoto, Senior Director, National StrategicSpecial Zone Team, Tokyo Metropolitan Government(2) Creation of the environment to stimulate asset managementbusiness in the Kabuto-cho district
Speaker: Tomoharu Nakao, Managing Officer, Heiwa Real EstateCo., Ltd.
3. Research committee on overseas trends in asset management
1. Creating the business environment to strengthen the asset
management industry
 Case studies of the use of foreign asset management company

Second December
meeting
9, 2015

middle/back office by global custodians and implications for Japan
Speaker: Hideyuki Takahashi, Chairman, State Street Trust andBanking Co., Ltd.
2. Improving systems to strengthen the asset management industry
 Case studies of the use of Funds Passport outside Japan
Speaker: Eriko Sakata, Partner, Linklaters LLP
1. Realizing a dynamic capital market and stable asset building
Speaker: Yasushi Hasegawa, Deputy Director-General of the
Planning and Coordination Bureau, Financial Services
Agency2. Initiatives to train qualified human resources in finance

Third
Decembermeeting
24, 2015(1) Singapore’s initiatives to train qualified human resources infinanceSpeaker: Kei Kodachi, Senior Analyst, Nomura Institute of
Capital Markets Research(2) Tokyo Metropolitan University Master of Finance program
Speaker: Tomonori Uchiyama, Professor, Department of
Business Administration, Graduate School of Social Sciences,
Tokyo Metropolitan University39

1. Training Emerging Managers
Fourth January
meeting
26, 2016

Speaker: Yasunori Nakagami, CEO,Misaki Capital Inc.
2. Deliberations to date (Interim Report)

Fifth
March 4,
meeting2016

 Recent GPIF initiatives and expectations for investment institutions
Speaker: Hiromichi Mizuno, Executive Managing Director and
CIO, Government Pension Investment Fund
1. Governance of Japanese investment trusts
Speaker: Akihiro Wani, Senior Counsel
Yosuke Unami, Associate
Ito & Mitomi LPC

Sixth
March 30,
meeting
2016

2. Promotion of a Tokyo Global Financial Center (Funds center)
Speaker: Yoshio Hishida, Working Group Member (Managing
Executive Officer, Sumitomo Mitsui Trust Bank, Ltd.) Initiatives to supply investment products for medium- to long-term
Seventh April 14,
meeting2016

asset building
Speaker: Satoshi Arai, Working Group Member(Senior Corporate Managing Director, Nomura
Securities Co., Ltd.)
1. Results of a needs survey to attract foreign asset management
operators

Eighth April 27,
meeting
2016

Speaker: Keiichi Aritomo, Partner, PricewaterhouseCoopers (US)
2. Development of Japanese asset management companies
 Including the practice of fiduciary duties
Speaker: Akiyoshi Oba, Working Group Member (Chairman,
Tokio Marine Asset Management Co., Ltd.)

Ninth
June 17,
meeting
2016

 Draft report of the Working Group on Asset Management40