Speaking to International Adviser, he said: “While the immediate impact may be small, we believe the introduction of the IFA reforms will help financial management or wealth management become a more common concept for Korean investors.”
Market overhaul
In a bid to open up the nation’s tightly-regulated financial advisory sector, the Financial Services Commission (FSC) announced last month that it is currently working on changes in regulation, due to come into force in May. These would mean that employees in financial services companies, such as asset managers, analysts and advisers, will be able to set up investment advisory firms completely independent from their employers.
Capital requirements for such firms will be slashed by a whopping 80% down to KRW100m ($85,500) from KRW500m ($428,675) previously.
Independent Financial Advisers (IFAs) in South Korea will also adopt a fee-only model similar to the UK where service charges are paid for by the client with strict prohibitions on receiving commissions from product providers.
"While the immediate impact may be small, we believe the introduction of the IFA reforms will help financial management or wealth management become a more common concept for Korean investors.”
Although, non-IFA advisers can still receive commissions from product providers in addition to advisory fees from their clients, they must disclose such payments to their clients first.
Reduced fees
Kim said he backs the new regulation, calling it a “positive long term development” which will increase the number distribution through which asset or wealth management companies such as Schroders can offer their products.
He believes the fee structure reforms may cut the distribution fees which investors pay on the products sold by IFAs and eventually match the lower fees charged by Fund Online Korea, South Korea’s first online fund supermarket which launched in April 2014.
He said: “Regarding the fee structure, in light of the changes in legislation, the current ‘commission-based’ structure will be changed to a ‘fee-based’ structure – introducing an ‘advisory service fee’ to those seeking IFA services.
“Distribution fees on products sold by IFAs are expected to be around the same level as the products sold on the online platform -‘Fund Online Korea’ and in the long term may reduce distribution fees.”
‘Rebuilding trust’
The comments echo those made just weeks ago by Barings’ chief executive in South Korea Thae Khwarg, in which he welcomed the new changes.
He added that the reforms “could be the turning point in rebuilding trust” in the wake of the 2008 global financial crisis which he said stalled South Korea’s financial advisory market due a “loss of trust in asset management companies and concerns over mis-selling”.
