Kenji Kinoshita, CFP, walked away from everything when he decided to become an independent financial advisor.
“Due to the conditions required by my former insurance company, I had to resign,” said Kinoshita, a 10-year MDRT member from Osaka, Japan. “I lost all of my renewal commissions, as well as my remaining first-year commissions. I had to start with zero income.”
But, after 10 years as a tied agent, Kinoshita looked forward to being his own boss, even though it meant starting over.
Kinoshita started out as a financial advisor 15 years ago. Because of his background as an engineer, he naturally gravitated to the manufacturing industry, calling on business owners in this niche market. He focused on life insurance for individuals and businesses, property and casualty insurance, mutual funds, and stocks and bonds. He also handled succession, inheritance and estate planning.
His goal from the beginning of his career was to acquire the knowledge and skills to become an independent advisor. To prepare himself for the change, Kinoshita asked three independent financial-advising business owners in Japan to mentor him.
He learned the advantages of being independent: more flexibility to meet clients’ needs and the autonomy to make your own business decisions. He also learned the disadvantages: the difficulty in maintaining high enough levels of production with each insurance company to qualify for higher rates of commission, and the lack of updates about the industry, which in the past had come from his company.
The most important part is to have a clear vision and set a goal for yourself.
Being independent also can be isolating at times, Kinoshita acknowledged, but he has found the approach works best both for himself and his clients.
“I can offer a much wider variety of products to better meet client needs, while also getting the opportunity to be my own boss and actually manage the business,” he said. “You can pick and choose the insurer you want to do business with. You also need to secure sources of information, which requires you to be proactive to learn.”
In the five years since he started his own practice, Kinoshita’s wife has joined him to handle the tasks that took him away from meeting with clients and developing solutions for them. “I used to do everything myself, including the administrative work,” he said. “Now I delegate as much as possible, so I can concentrate on the marketing side of the business.
“I still design the insurance plans and put them together in the proposal, but I’m going to hire someone to do that for me soon. It will buy me more time to think about and plan for the future, and to do strategic management planning.”
As part of his strategic planning, Kinoshita is exploring a fee-based business model. “Independent agents in the insurance industry are facing the challenge of commission disclosure and transitioning to fees,” he said. “It’s been said it will take some more years until Japan transitions to fee-based business, but I feel the need to be prepared.”
To understand what the future holds, and to compensate for the information lost when he left a large company, Kinoshita takes courses to learn the latest on inheritance strategies, business succession and investment advising. “These will become tools to differentiate me when the time comes,” he said.
This learning and strategizing reflect what Kinoshita said is the most critical aspect of becoming independent. “The most important part is to have a clear vision and set a goal for yourself.”
Changing regulations in Japan
While Kinoshita is looking forward to hiring additional staff, recent changes in Japan’s employment laws are giving him pause. The biggest change is in the employment status of the sales representative.
“In the past, you could hire under a contractual basis, but now you have to fully employ the agent with a fixed salary and social security,” he said. “It will cost much more and, once you hire someone, it’s not easy to fire in Japan. Because of the huge fixed cost, I haven’t hired any sales support. I’m still designing the compensation structure.”
Recent regulations regarding compliance have not had as much impact on Kinoshita. Under the new rules, each client interview must be recorded. Additionally, insurance companies and the Financial Services Agency, which oversees Japan’s financial institutions, now come on-site for inspections.
“The law requires us to keep good records, which is a benefit to us because I can look back and review how and why I recommended a plan,” Kinoshita said.
As far as the on-site inspections, little changed for Kinoshita because of his strict adherence to compliance and ethics. “It was just a reminder to do the right things. Those who are not ethical or who don’t comply with the rules will eventually have to drop out, which will be a good thing for the industry.”