Banks in Japan need better service for new rich

TOKYO (Reuters) - Banks looking to tap growing demand for private banking services from Japan's "new rich" will need to offer a more sophisticated service as they are savvy about finance, an industry consultancy firm said on Wednesday.

People who hold more than 100 million yen ($852,100) in financial assets represent only 2 percent of all households in Japan. But this segment grew at a compound annual rate of 4.1 percent in the last three years to 1.47 million in 2006.

The newly rich represent about 30 to 40 percent of this wealthy group and are looking for professional financial advisors to build up their fortunes. But Soichiro Takaoka, chief executive officer of Abraham Group Holdings, a private consulting firm, said some banks have failed to capture this demand, offering mis-matched services or products.

"Some banks basically use the methods that target the old rich. I think they are facing some difficulties," Takaoka said.

"The new rich are self-made people like lawyers or business owners who have taken various risks."

Local and foreign banks are crowding into Japan's wealth management sector looking for lucrative returns as the number of wealthy households expands, helped by the growth initial public offerings, which were at the second highest ever last year, and the rise in corporate profits.

The new rich include the business elite, professionals like doctors, those who made money from online trading, double income couples and new entrepreneurs, and they will be the fastest demographic segment among the wealthy in Japan, Takaoka said.

He said the new rich are willing to buy risky assets such as commodity-related bonds, overseas assets, and alternative investments, and thus financial advisors will need to offer expert knowledge on investments.

"There are people who are interested in investing in a development project in India or a highly-leveraged project in Dubai," he said. "People in their 50s or 60s are defensive and they prefer fixed income products ... the new rich are the one who look to grow their money."

Japanese banks have the potential to be market leaders in the wealth management market as they are already providing services to rich people, but Takaoka said the new rich seem to have high hopes for foreign private banks, especially Citigroup Inc (C.N) and HSBC (HSBA.L).

Citgroup recently agreed to buy Japan's third-biggest brokerage Nikko Cordial Corp 8603.T for $12.6 billion, its biggest ever Asian acquisition. HSBC has been in Japan's wealth business for 11 years and plans to soon roll out a retail banking business to reach a broader spectrum of the wealthy.

"Expectations are high that the foreign institutions could offer state-of-art solutions for them," he said.