Nomura’s Wealth Push Pays Off as Fee Income Balances Risks

(Bloomberg) -- Nomura Holdings Inc.’s decades-long efforts to build a wealth management business in Japan are paying off.

The nation’s biggest brokerage has been gradually diversifying away from trading stocks for retail clients toward managing money for well-to-do customers. That has helped to generate more stable fee income, with recurring revenue from investment and other services climbing to a record last quarter and likely to keep rising, according to retail business head Satoshi Arai.

“Our recurring assets will likely grow in a way we haven’t seen in the past if we channel more of our efforts into delivering services to clients who need them,” Arai said in an interview. “The measures we’ve taken may be bearing fruit.”

Nomura is among Japanese brokerages under pressure to increase income from businesses such as wealth as competition pushes commissions lower and regulators crack down on pushy sales tactics. This pivot may help the brokerage withstand shocks such as the collapse of Bill Hwang’s Archegos Capital Management LP earlier this year, which resulted in the firm taking a $2.9 billion hit. 

Record Quarter

The brokerage posted a high of 25.2 billion yen ($230 million) in revenue from recurring assets like wealth management contracts in the first quarter. At the time it managed 19.1 trillion yen in such assets, which are on track hit a target of 21 trillion yen by March 2023, according to Arai.

“We have to make sure it will be achieved,” he said.

Nomura’s push into wealth management has recently been helped by rising stock markets and an increased interest from people who “are starting to feel more strongly that they have to manage their assets from a long-term perspective,” Arai said.

It’s also been buoyed by investor demand after central bank moves made bonds and some other traditional investments less profitable and pushed the price of stocks and real estate higher, according to Hideyasu Ban, an analyst at Jefferies Financial Group.

“That helped set off portfolio rebalancing, by making people feel that they have to invest in those risk assets,” he said.

There are also “fewer competing options for individuals to build a retirement savings than there used to be,” said Michael Makdad, an analyst at Morningstar Inc. in Tokyo. “Guaranteed yields on insurance products are near zero, and foreign-currency interest rates are also much lower than they were. So there is no alternative for individuals but to manage their savings in risk assets focused on equities, and perhaps real estate and alternatives like private-equity funds.”

Retail Shift

Nomura signaled its intention in the late 1990s to shift the focus of its retail business to wealth management as deregulation pushed brokerage commissions lower, and has stepped up those efforts in recent years. In 2019, it reorganized about 7,000 staff partly to improve its offering for high-net worth clients. 

The brokerage is facing increased competition from banks such as Sumitomo Mitsui Financial Group Inc. and Goldman Sachs Group Inc. who are stepping up efforts to manage money for the rich in Japan where households hold more than half of their roughly 2 quadrillion yen of assets in cash and deposits. 

The firm is rolling out Nomura Navigation, a customized version of UBS Group AG’s wealth management system, to enhance its asset management advisory services with a full launch set for 2022, Arai said. Nomura recently started to provide corporate owners with a team of wealth managers with different specialties, instead of just one dedicated relationship manager.  

Although Nomura has “changed a lot” since the late 1990s, it still needs to do more to make sure bankers focus on client needs ahead of making money, Arai said. “I hope that we will be able to say in retrospect that the first quarter was a turning point,” he said.    

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