The Japanese Wealth Manager That Boosted Profits By 195%
Nomura Holdings’ net income tripled in the first quarter from a year ago thanks in part to its wealth management division.
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Japan’s largest brokerage and investment bank owes a lot of praise to its wealth management arm — and we mean a lot — and to a recent strategy the company used to segment its client base.
Nomura Holdings reported 68.9 billion yen ($446 million) in first-quarter profits this week — a whopping 195% increase year-over-year — topping analyst expectations compiled by Bloomberg. Nomura’s wealth management branch reported 42.3 billion yen ($274 million) in pre-tax income, an 84% jump from last year and the highest it’s been in nine years.
A rally in global markets and domestic inflation of course had customers moving more of their savings into investment accounts, but the company attributed the success, at least in part, to segmenting its clients and being able to serve and monetize them more efficiently.
Personalized Management
In addition to market factors, Nomura attributed its growth in wealth management to its segment-based advising approach. That sounds slightly fancy, but it basically just means separating clients into different tiers based on factors like age, income, financial goals, assets under management, and more, then determining what services to offer them. They also differentiated how often they should engage with clients, and most importantly, how much advisors should charge:
- Banks mostly look to attract the wealthiest clients because they create the most opportunities for revenue: the more bucks for your bang. But it’s still highly beneficial to cater to smaller investors as well. Retail investors accounted for 460 billion yen ($3 billion) in Nomura’s wealth arm’s net inflows of cash and securities.
- Studies from Fidelity found that firms that segment their client base had more growth in AUM and clients with $1 million or more than firms that didn’t segment: However, only 37% of firms do it.
More Factors at Play: The most popular segment that helps firms determine management fees is AUM. But what if a portfolio barely needs any management? Or perhaps it’s getting too much attention.
“Many advisors choose to segment their clients based solely on client profitability,” according to the Fidelity report. Some 51% of households that firms serve are not ultimately profitable for those businesses, so segmentation helps clarify where an adviser’s time and energy should be focused.
Many investors are also shifting to fee-based advising. Think of it like a cable package where you get to pick what channels you get and your bill is based on that. We still remember cable, right?