The Financial Supervisory Service (FSS) has issued a consumer alert regarding the rapid increase in bank sales of exchange-traded fund (ETF) trusts and is initiating improvements to the fee structure, internal performance evaluations, and overall sales procedures. This decision comes amid a rise in transactions among vulnerable investor groups, such as the elderly, where short-term trading and increased upfront fees have heightened consumer costs.
According to the FSS, from January of last year to May of this year, the sales of ETF trusts by six major banks—KB Kookmin, Shinhan, Hana, Woori, SC, and NH Nonghyup—totaled 64 trillion won (approximately 103 million transactions). Sales in May alone reached 10.8 trillion won, an 8.8-fold increase compared to December of the previous year, which saw sales of 1.2 trillion won.
The FSS stated that due to the rapid growth in ETF trust transactions, it has issued a consumer alert that encompasses transaction characteristics, consumer protection practices, and important consumer considerations.
Additionally, the FSS has decided to comprehensively review the fee structure for trusts, including ETFs. This review will assess the appropriateness of the entire fee structure, including upfront and deferred fees, early termination fees, and trading fees, with the aim of reducing the financial burden on consumers.
The FSS's move to improve the system is driven by the short-term nature of ETF trust transactions and the mismatch in the fee structure. Analysis by the FSS revealed that the average holding period for ETF trust investors from January of last year to May of this year was only 42 days. Furthermore, 94.6% of transactions involved sales within six months, with 37.9% being ultra-short-term trades occurring within ten days.
However, the proportion of investors opting for upfront fees, which are disadvantageous for short-term investments, was found to be 91.7%. Upfront fees are charged once at the time of investment, while deferred fees are charged based on the holding period at the time of termination, making deferred fees more favorable for shorter investment periods. This has led to a counterintuitive situation in actual trading.
The FSS analyzed that if customers had chosen the optimal fee structure based on their investment duration, the fees banks could have collected from January of last year to last month would have been around 54.5 billion won. However, the actual fees collected amounted to 394.8 billion won, which is 7.2 times higher.
There has also been an increase in ETF trust transactions among vulnerable investor groups, such as the elderly. The average age of ETF trust investors is 59, with 29.9% of investors aged 65 and older.
The FSS will also examine whether customer interests are adequately reflected in the bank trust sales process. Most banks incorporate customer investment return indicators into their key performance indicators (KPIs) related to trusts, and the FSS plans to discuss whether the formulas and weighting of these indicators are appropriate and to explore improvement measures.
* This article has been translated by AI.
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