Japan's brokerages seize opportunity as death tax set to rise
TOKYO (Reuters) - As Japanese families gathered earlier this month for the traditional "Obon" festival honoring ancestors, some elderly parents broached an awkward but increasingly critical topic: planning for inheritance.
Japan's government will increase the inheritance tax rate in January, while tax relief measures on gifting will be expanded, in moves aimed at encouraging wealthy, older Japanese to either spend or pass on their savings before they die.
In years to come, the change would release billions of dollars languishing in savings accounts into the hands of a younger generation and promote investments in stocks and property, giving the economy an extra push as it emerges from nearly two decades of deflation.
"There's a major distortion in Japan with funds heavily concentrated among the elderly. Trying to change that is worthwhile," said Yasuo Yamamoto, senior economist at Mizuho Research Institute.
The shift presents brokerages such as Nomura Holdings and Daiwa Securities Group, grappling with an aging clientele, with an opportunity to bolster client assets by offering estate planning services.
Nomura's Chief Executive Koji Nagai estimates around 50 trillion yen ($480 billion) is passed on through inheritance each year, with that amount set to grow in the years ahead given Japan's demographics.
That will inevitably mean greater demand for services such as real estate planning and wealth management consulting.
The long-term stakes, however, are even higher for brokerages. Japan's population is aging, and much of the 1,630 trillion yen in financial assets held by households belong to people over 60 years old.
Nagai told an investor meeting this month that Nomura could gradually lose much of its 95 trillion yen in retail client assets unless it won over the loyalty from younger family members who stand to inherit clients' legacies.
Daiwa executive Mitsuru Fujita, head of wealth management at Japan's second-biggest brokerage, said talk of inheritance planning used to be a dreaded precursor to losing a client's business. These days, his colleagues are more likely to be asking for the contact details of the customer's children.
"Until now, inheritance meant an end. But if you're acquainted with a family and understand its needs, you're not necessarily letting go when a client passes on," he told Reuters.
Nomura and Daiwa lead Japan's retail brokerage market, from which most foreign players have largely exited in recent decades as Japan struggled with repeated recessions.
Both have launched campaigns to attract new customers such as family members. They both currently offer cash rewards for introductions to new customers, and are holding seminars at branches nationwide to help customers prepare for inheritance.
Nomura has seen a rise in enquiries on estate planning as families got together for Obon, with interest running high ahead of the tax change, according to Manami Okada, who delivers inheritance-related seminars for the brokerage.
"We might ask, where does the rest of your family live? Can we meet them some time?" she told Reuters after addressing a seminar in Hachioji, a suburb in western Tokyo. "During August, we might suggest they talk to family about inheritance when they get together, or say, please bring them to meet us if you can."
The planned changes include making more households subject to inheritance tax by lowering exemptions, and raising the levy on the highest bracket to 55 percent from 50 percent.
Japan's so-called "death taxes" are already among the world's highest, part of a post-war bid to promote equality. As a result, Tokyo's large estates have been carved up into small plots over the past several decades.
Tax accounting company Legacy estimates that around half of all households in Tokyo will become subject to inheritance tax filings from January, compared to an earlier one in four. Taking into account various exemptions, 19 percent will actually need to pay, compared with a previous 9 percent, it forecast.
Brokerages are not alone in seeking a piece of the action. Real estate firms are encouraging clients to invest in rental apartments for tax purposes. Insurance companies are also recommending policies which help limit the tax burden on beneficiaries.
Akira Shibata, a spokesman for Japan's largest private life insurer Nippon Life Insurance, said sales of life insurance policies over a million yen – most popular among those seeking to manage inheritance-related taxes - had risen 90 percent from a year earlier as of July, building on a 70 percent rise in 2013. Nippon Life was holding seminars almost daily due to the strong demand, he said.
"We've increased the number of seminars to such an extent that any more would be impossible. We just wouldn't have enough people to come and speak," Shibata said.
(Editing by Simon Cameron-Moore)
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