Wealth management in Japan: mandates, custody and taxation

Trust banks, securities firms and private banks

Wealth management in Japan is delivered by the private banking arms of the megabanks, trust banks and large securities houses such as Nomura and Daiwa, which manage or advise on large yen and foreign currency portfolios under the Financial Instruments and Exchange Act and FSA supervision. Wealthy clients often combine deposits, securities and estate services there.

In Japan, wealth management is provided by the megabanks’ private banking arms, trust banks and large securities houses such as Nomura and Daiwa. Wealthy clients often combine deposits, securities and estate services there.

The FIEA and supervision of advisers

The Financial Instruments and Exchange Act governs advice, discretionary management and the sale of financial products. Intermediaries must be registered with the FSA and check product suitability against the client profile before any recommendation.

Wealth management in Japan: fund wrap mandates and discretionary management

The most common discretionary mandate is the fund wrap, in which the manager allocates the portfolio across funds according to an agreed risk profile. Annual fees come on top of underlying fund charges and should be compared with traditional advice.

Multi-currency wealth and uninsured deposits

Wealthy clients often hold dollar or euro deposits to diversify away from the yen. These foreign currency deposits are not covered by DICJ insurance, which pushes part of the liquidity into securities or yen deposits.

Japan’s investor protection fund

Securities held with a broker are segregated from the firm’s own assets. If that segregation fails in an insolvency, the Japan Investor Protection Fund compensates up to 10 million yen per customer.

What MUFG Bank asks of a foreign wealth client

A foreign client approaching the private bank of MUFG Bank usually needs residence in Japan or a strong business link. Source of wealth, tax residence and the composition of assets are documented before any mandate.

Exit tax on unrealised gains

Since 2015 a resident leaving Japan with at least 100 million yen of financial assets may be taxed on unrealised gains. The timing of a move to France should therefore be planned with a tax adviser before reorganising the portfolio.

Japanese inheritance tax and family planning

Japanese inheritance tax is progressive, with a top marginal rate of 55 percent. It can reach assets outside Japan depending on the residence of the deceased and heirs, which explains the weight of trust services in Japanese private banking.

Reporting assets held outside Japan

A Japanese resident holding more than 50 million yen of assets abroad files an annual foreign asset report. Conversely, a French resident reports Japanese accounts on Form 3916 and securities under French rules.

Reporting, fees and CRS exchange for Japanese private banking

Japanese portfolio statements detail positions, gains and withholding, often in Japanese only. Custody, mandate and exchange fees are negotiated by asset size, and data on accounts held by non-residents is exchanged under CRS.

How to choose wealth management in Japan

Before contacting an institution, identify the type of provider that matches your need. The private bank of a megabank, a trust bank and a large securities firm do not offer exactly the same services. Some stress deposits and credit, others portfolio management or passing wealth on to the family.

Then compare what each offer contains: discretionary management, advice, custody of securities, inheritance services and access to funds. Wealth management in Japan often combines several of these elements, with separate fees for each. Ask for a clear table of mandate, custody and exchange costs so that you compare offers that are really equivalent.

Finally, think about language and follow-up. Statements and contracts are frequently written in Japanese, which may require translation and some time to adapt. Check whether a contact speaks your language and whether reports can be sent in a format your tax adviser understands.

Documents and steps to open a management account in Japan

In practice, Japanese private banks first want to know your status: residence in Japan or a solid business link, nationality, tax residence and the make-up of your wealth. A foreign client with no local tie may be refused a relationship. It is better to ask before gathering a full file. Wealth management in Japan thus rewards a prepared client.

Then prepare the supporting documents: identity document, residence card if applicable, My Number if you are a resident, evidence of the origin of your wealth and recent statements from your accounts. The bank compares these with your tax returns. Gaps between documents and explanations delay the review and can lead to extra requests.

The last step is defining the mandate and the risk profile. The bank checks that products suit your situation, under the Financial Instruments and Exchange Act, before any recommendation. Read the contract, the fee schedule and the custody policy before signing. Timing varies with the institution and the complexity of the file.

Common mistakes in private banking in Japan

The first mistake is to underestimate cumulative fees. The annual fees of a fund wrap mandate come on top of those of the underlying funds, and custody and exchange fees are added. Compare the total cost with that of traditional advice before delegating the management of your portfolio.

The second mistake concerns currencies. Many clients hold dollar or euro deposits to diversify their exposure to the yen, without realising that these deposits are not covered by the Japanese deposit guarantee. Distinguish therefore between guaranteed deposits, segregated securities and unprotected products.

The third mistake is to prepare a departure from Japan without a tax specialist. The exit tax on unrealised gains can affect a resident who leaves the country with substantial financial assets. The timing of a return to your own country must be studied before changing the portfolio, because a late reorganisation can be costly. This applies to every wealth management account in Japan.

Questions for your bank and reporting duties

Ask precise questions about custody: are your securities segregated from the institution's own assets, what does the investor protection fund cover and what are the limits of that protection? Request the answers in writing, because deposit protection and securities protection are two distinct mechanisms.

Then ask the bank about the frequency and content of reports: positions, gains, withholdings, fees and currency exchanges. Ask whether statements exist in a language other than Japanese, and how they will be sent. These documents are the basis of your returns in your country of tax residence.

On tax, take account of the CRS standard and the rules of your own country. A Japanese resident reports assets abroad above a threshold, while a French resident declares their Japanese accounts on Form 3916. Inheritance duties can also reach assets located outside Japan; check your case with an adviser.

Monitoring wealth management in Japan: reports, reviews and exit

After signing, read carefully the reports the institution sends you: portfolio valuation, a list of transactions, the fees charged and a comparison with the agreed objective. The documents are often written in Japanese, so it is worth asking in advance for a version in a language you master or for the help of an interpreter. Note your questions after each mailing and obtain the answers in writing. A portfolio that is followed closely lets you spot early any gap with the risk profile you accepted.

Plan a review whenever your situation changes: a new country of tax residence, a return to your home country, the sale of an asset or a change in your family. These events can affect the type of service that suits you and the declarations you must make. If you are thinking of leaving the institution, ask how securities are transferred, which fees apply and what delay the bank announces in practice. It is better to know these conditions before investing than to discover them when you want to take back control of your assets.