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Private Banking  Q & A
Q.1
What is Private Banking? What is PBJ?
Q.2
Why is it needed in Japan now?
Q.3
How is Japan legally different from any other country? Will this continue?
Q.4
How is a private bank different from a retail bank and is it any better?
Q.5
What services do they offer? are these only onshore, offshore or both? What is the main difference between them?
Q.6
Are all private banks the same? How do they differ in service or products?
Q.7
What does the Japanese government think about off shore private banks?
Q.8
If Japan population shrinks, does that mean that real estate can never go back to bubble prices?
Q.9
Is it true that the Japanese pension system will end or change within 10years?
Q.10
Besides the safety of savings and capital consolidation, what is important in a any choice when choosing a private bank account service?
Q.11
Do I qualify as a private banking client? What is a typical profile in Japan?
Q.12
What is the difference between affluent, wealthy and rich clients? what am I?
Q.13
What does "fuyuso","shin-fuyuso" mean really? I am not in finance so I do not really know? Is it similar to "Okuman"?
Q.14
What is a hedge fund and why will private banks offer it as a product choice?
Q.15
How will the Japanese postal savings system change the behavior of Japanese customer and private banks?
Q.16
Why is the older generation making the younger one today spend savings and increase debt?
Q.17
Harvard University has an endowment fund group called Harvard Capital Management, what is an endowment? Can I buy it?
Q.18
Some media reported that a fund manager at Harvard's endowment earned more than $US25MM in bonus, how can that be?
Q.19
I heard private banks often talk to family offices for HNWI types, is it the same as a family business?
Q.20
Are there any hedge funds or fund of funds open for investors that repeat the same style as these managers?
Q.21
Do super rich Japanese business founders like Matsushita or Honda have family offices in Japan?
Q.22
What is a fund of hedge funds? How is it different from a single hedge fund?
Q.23
Why is diversification a good thing? Why is this good for my pension money?
Q.24
Why is a private bank good for inheritance and continuance issues with my kids?
Q.25
I now feel I need better tax, insurance and financial planning, is opening an account with a private bank really a good choice for me?
Q.26
Does the better quality service at a private bank mean just "more expensive"?
Q.27
What is PBJ (Private Banking Japan)?
Q.28
How does PBJ make money as a service if it is free?
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Q.1
What is Private Banking? What is PBJ?
A
Private banking is a premium banking service to people with 30M-300M yen or more in financial savings. They invest in two main financial product areas. Often currency deposits or investment style products. It is often for affluent or very wealthy people who own companies or large land assets. It tries to combine basic banking with complimentary advice for its customers.
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Q.2
Why is it needed in Japan now?
A
Many older Japanese baby boomers are retiring now. In fact, they started to retire in large numbers in 2007. Each time they retire, a large lump sum payment will often be given by their former companies. This payment is often 25-50 million yen, but often 75M-100M or much more. It makes them an instant private banking customer. Usually these newly retiring Japanese do not realize that they can instantly get better banking service because of this larger asset amount of savings. Private banking is being focused on, because large enterprises have no big borrowing requirements any more, so
financial institutions are looking for new markets with high growth that could generate profit. As a result, the majority of Japanese financial institutions shifted their focus from the corporate loan business to retail banking, especially private banking business in the last two years.
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Q.3
How is Japan legally different from any other country? Will this continue?
A
Very rich people are often aware of both Japanese and international real estate investment choices. On shore investments in Japan have been the most
popular for private banking services. As the Japanese yen gains value, overseas land, and other investments will be more attractive to many more Japanese. Many of the retiring generation will start investing in real estate, foreign currency deposits or securities because they think the current low interest rate level on yen deposits will persist for the time being.
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Q.4
How is a private bank different from a retail bank and is it any better?
A
Private Banks usually focus on wealthy individuals who have between 100-500 million yen in savings for their personal long term investment needs. These larger amounts often come from the sale of land or business holdings, especially IPOs. Many private banking customers have two or more bank or securities accounts at the same time. One private bank account is often for loans and time deposits. Other securities accounts are more for investment style products. They often keep a retail bank for every day needs like paying bills. How to best use your savings for low, medium or high-risk investments is what private bankers spend most of their time advising customers about.
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Q.5
What services do they offer? are these only onshore, offshore or both? What is the main difference between them?
A
When private banks ask customers about buying onshore versus offshore products, they really want to know if does the customer wants mostly Japan based investment choices? or also overseas ideas that can be very helpful for minimizing Japanese inheritance or local taxes. Effective tax related real estate advice could often have a money saving off shore tax twist. Many older Japanese are now even choosing to retire overseas, while still getting their Japanese government and corporate pensions paid to them from Japan. Australia, Canada, Europe and the USA (especially Hawaii) are places where a growing number of Japanese retirees are moving and settling overseas full time or just over the winter months. It can be financially smart to do so because of big differences in the costs of living when compared to staying in Japan.
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Q.6
Are all private banks the same? How do they differ in service or products?
A
All private banks are not the same. It is important to make a difference between banking services and private banking "types" of services. To give an example, securities companies sometimes call their premium level of services "private banking", but do not have any loan abilities. Some private banks are not engaged in lending, while others are active in lending to individual investors. Private banking of trust banks puts emphasis on pension or mutual trust, real estate trust, etc. Private Client Services, for example, is often used when the company is only engaged in securities business.
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Q.7
What does the Japanese government think about off shore private banks?
A
In 2005, Japan's population will begin to decrease every year for more than 25 years. by 2030, the population of Japan may decrease from 130,000,000 today, to less than 100,000,000! Fewer people in Japan, will make land less expensive. Company villas (locally known as bessos) and other similar recreational real estate (often in the countryside) will be sold in larger and larger amounts over the years to come. This is due to recent tax and accounting changes. Real estate prices will not recover to bubble time peaks for many years, possible 20 or more. Many private banks are therefore turning their attention to introducing overseas real estate for investment purposes by Japanese. Overseas REITs and other similar products are now growing in popularity among Japanese retirees who no longer want to see their real estate holdings in Japan fall in price over the next 5 or more years until 2010.
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Q.8
If Japan population shrinks, does that mean that real estate can never go back to bubble prices?
A
True, their real estate prices in Japan may never recover to bubble levels. If real estate was considered a safe long-term investment previously, that certainty has now changed. Fewer locations now qualify as safe and assured investment opportunities. All land will no longer always go up in Japan due to population down trends.
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Q.9
Is it true that the Japanese pension system will end or change within 10years?
A
Yes, it is true. The amount of younger people supporting older generations may change it in future. Napoleon started a pension system 200 years ago for military soldiers in France who were 65 and older. At the time, the life expectancy was only 55. These ages insured an ongoing system. The average life span of Japanese in future will grow from around 75 today to more than 80. A better pension system age should start rising toward at least the life expectancy age. It is now unlikely to surpass it. The most likely case is for partial pensions to begin at 65, but full pensions will move to a higher age like 70 and later 75 or more over time.
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Q.10
Besides the safety of savings and capital consolidation, what is important in a any choice when choosing a private bank account service?
A
Important choices for customers come down to what services they need today, as well as tomorrow. Finding the best match can take time. Some customers really need a more traditional private bank service because they want loans. Other only want simple growth securities products. Size and service levels are the most important drivers in any choice. The availability of various kinds of investment instruments is also important. It is important to choose carefully between high risk/high return instruments versus low risk/low return opportunities. All of these choices depend on the client's risk comfort and financial planning needs.
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Q.11
Do I qualify as a private banking client? What is a typical profile in Japan?
A
There are many types of private banking customers, but the four below are the most common kinds of backgrounds.
A) the first are company owners of listed firms that are directly tied to a family business
B) second are third generation wealth often based on real estate holdings in or outside of Tokyo
C) third are successful professionals who are going to retire with a large pension lump sum of 30M yen or more.
D) fourth are those people who will inherit a large amount of financial assets or a large amount of real estate.
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Q.12
What is the difference between affluent, wealthy and rich clients? what am I?
A
This is more important to the banks themselves, in order to qualify customers better. Affluent or wealthy types have 10-100M yen in financial assets. HNWI (High Net Worth Individual) types have 100-500M yen, while rich Ultra HNWI people have 1BN yen or more. There is another group called Ultra high net worth types who have 20 oku yen or more. These assets are considered to be cash, time deposits, securities, REITs, and does NOT include the customers home or land holdings. It is money that can be used for investments right away and is liquid.
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Q.13
What does "fuyuso" mean really? I am not in finance so I do not really know? Is it similar to "Okuman"?
A
This is a term that is often used in business for wealthy families with money and education. It describes Japanese who feel that wealth is important and worth taking the time to examine the best investment ideas for it. It can cover many income levels from 10M yen in savings and up to 10BN yen or more, there is no limit.
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Q.14
What is a hedge fund and why will private banks offer it as a product choice?
A
A hedge fund is a special investment pool run by professional specialists. They trade their own money in addition to other partners�f money together. There is often a limit to how many are in such a group. The limit is often 50 private investors. They can perform well even when markets go down because they can make profits in bull and bear markets.
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Q.15
How will the Japanese postal savings system change the behavior of Japanese customer and private banks?
A
The postal system will change in the future in several ways. It will become private. Individual saving accounts will not be guaranteed beyond 10M yen. Finally interest rates given today will no longer keep the market advantage over retail banks. This change to the way money is kept in the system will give private banks a chance to give customers a chance to appeal to other products and services. These new offerings may be safer and higher yielding than those currently offered within the post office today.
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Q.16
Why is the older generation making the younger one today spend savings and increase debt?
A
Many younger generation Japanese are shrinking in population. This means higher taxes on salaries will be made to pay for the growing amount of older Japanese needing pensions.
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Q.17
Harvard University has an endowment fund group called Harvard Capital Management, what is an endowment? Can I buy it?
A
An endowment is basically a charity fund supported by a university's alumni. The goal is to increase the wealth of the university or college in order to build new libraries, wings, etc. It is not open to the public, only previous graduates, so investors cannot buy this as a product.
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Q.18
Some media reported that a fund manager at Harvard's endowment earned more than $US25MM in bonus, how can that be?
A
Harvard Capital Management is a very large endowment fund. It has close to $US22BN in assets under management (AUM) and had a return of 21%. Many call this a hedge fund and that it is the biggest in the world. In order to keep very talented managers at HCM, they pay top people top performance bonuses. The salary base for these people is often low 15-20MM yen base. However, there is no limit to the bonus upside and yes, two HCM managers did earn more than US$25MM in bonuses in 2004. A growing amount of Japanese universities are now considering copying this US model. In future, more government guidance is expected when the pension fund industry is allowed to act more independently.
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Q.19
I heard private banks often talk to family offices for HNWI types, is it the same as a family business?
A
No, not at all. A family office is not common in Japan, and it is not like a family business. In Europe, Asia and the US, second and third generation wealthy families can have more than $US20-100MM+ in financial assets. When the amount is this large, the family head, or business owner will often hire professional money managers to decide what is best for the family funds. This special group of people works in a family office. Private banks, accounting firms or similar services, then deal directly with the family office staff instead of a family member directly. This is a natural step as a family's wealth grows to a substantial size with more and more complex products being added.
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Q.20
Are there any hedge funds or fund of funds open for investors that repeat the same style as these managers?
A
Yes, there are many that try, but they vary in success. Making money is never easy in the best of times. There is no easy quick answer to investing. Most interestingly, many professional managers see themselves in a long "marathon race" not a "sprint" to get rich quick. No matter how well they do over a short term, they often consider money management to be a long-term activity.
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Q.21
Do super rich Japanese business founders like Matsushita or Honda have family offices in Japan?
A
Yes, a small and growing amount of business owners of listed companies do have family offices in Japan. They are often very small, 2-5 people. In many cases, they are part of the company CFO responsibility. The CFO often heads this group and acts as a "gate keeper" in order to protect the wealth of the founding family.
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Q.22
What is a fund of hedge funds? How is it different from a single hedge fund?
A
A fund of hedge funds is a fund comprising a group of single hedge funds, usually 10-15. This grouping of different hedge funds makes the longer term results more positive in return, and safer over time. This dividing of the risk from one single hedge fund spread across a group is known as diversification.
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Q.23
Why is diversification a good thing? Why is this good for my pension money?
A
Diversification is good for risk management and makes any diversified group of investments safer over time. The goal is to make sure that one event will not cause the whole investment to loose money over the long term.
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Q.24
Why is a private bank good for inheritance and continuance issues with my kids?
A
Private bankers are very knowledgeable about inheritance tax. They specialize in giving high quality advice on how to minimize the amount of tax paid. They also help those with these investments, often family members, to grow that newly inherited money for the future.
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Q.25
I now feel I need better tax, insurance and financial planning, is opening an account with a private bank really a good choice for me?
A
Yes, private banks offer a wide variety of expertise for financial planning. Most customers who do open an account, learn about many more financial choices for their savings that they would not have found by themselves.
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Q.26
Does the better quality service at a private bank mean just "more expensive"?
A
No, it does not. Private banks make full use of their expertise that can often save customer's taxes, increase financial returns, safety of those assets, and adjust the risk of those returns over time.
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Q.27
What is PBJ (Private Banking Japan)?
A
PBJ is an information and customer introduction service for HNWI in Japan. As education is important for good decisions, PBJ is trying to guide any new or existing HNWI to choose the best private bank for their needs and expertise. We do not charge any yen fee to visitors for this advice directly, it is free.
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Q.28
How does PBJ make money as a service if it is free?
A
PBJ has relationships with private banks for introductions via advertising and other customer introduction arrangements.
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