In Japan, the Defined Contribution (DC) Pension Act strictly prohibits administrative service providers from recommending specific investment products to plan participants across the board.
In contrast, U.S. recordkeepers (the equivalent of Japan’s administrative service providers) are permitted to provide investment advice, provided they assume fiduciary duty.
The core issue in the U.S. is not “whether a recommendation can be made,” but rather “what level of responsibility the advisor bears.” If an advisor acting as a fiduciary is judged to have harmed the participant’s interests, they can be ordered to pay damages through litigation. The U.S. system has evolved through a combination of practical experience, judicial precedents, and regulations, all built upon this foundation of accountability.
For instance, actions involving potential conflicts of interest—such as recommending an affiliate’s proprietary products—can be permitted if they satisfy specific exemption requirements, such as proving they serve the participant’s best interests.
Furthermore, advice generated by computer programs designed to eliminate human bias is also permitted under certain conditions.
Services that manage investments on behalf of the participant (managed accounts) have existed for a long time, and in recent years, mechanisms have emerged that automatically switch to managed accounts once a participant reaches a certain age or asset threshold.
In Japan, however, regulation has taken precedence. In the name of “participant protection,” the act of making recommendations has been strictly suppressed. As a result, a sense of excessive trepidation has spread among providers/plan sponsors, and participants have effectively been cut off from accessing professional advice.
Looking at the current reality—where many participants struggle to choose products, leave their funds stagnant in capital-guaranteed products, or inadvertently double-down on the same assets while attempting to diversify—it is now impossible to ignore that this “prohibition for the sake of safety” is actually hindering wealth building.
With appropriate advice, more people would likely gain an interest in asset formation or manage their investments more wisely.
A quarter-century has passed since the DC Pension Act was enacted. People’s mindsets, technology, and the economic environment have all changed. It is time for a discussion on investment advice that is actually in step with the modern era.
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