(Bloomberg) -- Nippon Life Insurance Co. is revising the fees it pays to banks and brokerages for selling its products, as Japan’s financial regulator scrutinizes sales of riskier assets to investors.
Japan’s biggest life insurer is trying to avoid continued rounds of sellers encouraging investors to quickly get out of one product to put their money in another, earning more fees for the investment managers. That’s a practice that Japan’s Financial Services Agency has deemed problematic.
Nippon Life will discontinue a system used for some foreign-currency-denominated insurance products that converts the holdings to yen as soon as their investments reach pre-decided target levels. It will also revise commissions that are high the first year and then fall sharply if investors hold the contracts longer than that.
Japanese policymakers are trying to get households to shift their savings into investments that generate higher returns, so that they have enough money in retirement. It’s a serious issue for a country with one of the world’s biggest populations of the elderly that’s expected to grow in the decades ahead.
Nippon Life has an insurance product called “Long Dream Gold 3” that is sold at 127 financial institution locations across Japan, and invests in US or Australian dollars. The insurer pays a commission to the sales company of 4.5% in the first year and 0.15% in the following years if investors hold onto the products. From April it will reduce the first-year fee while raising those for the following years. It will also quit the investment target system.
The insurer said that when buyers’ investment target levels were reached, about 70% of the holders got out of the product within a year, and around 10% of those investors bought the same product again within a year. That runs contrary to Japanese policymakers’ goal of boosting long-term investments to ensure adequate finances for the elderly.
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