Turf war
The Financial Services Commission held a meeting on October 31 to discuss investment trust system improvement. This has to do with the banking sector’s request for rights to discretionary trust, that is, allowing financial companies to manage their customers’ trusted assets at their discretion so that banks can enter the asset management market, which is an idea financial investment companies have been opposed to.
Back in March this year, the local financial authorities allowed banks to sell discretionary investment products limited to individual savings accounts. The banking sector’s goal at this time is to cover the discretionary trust as well, which differs from non-discretionary trust characterized by asset management based on customers’ instructions.
The discretionary trust currently available in the United States, Britain and so on is similar to wrap accounts provided by securities firms. Still, the two differ from each other in that the former can have third parties such as family members and acquaintances designated as beneficiaries and can be invested in movable and immovable properties as well as financial products.
Financial investment companies’ biggest concern regarding the issue lies in the number of customer contact points. In South Korea, the number of bank branches is about six times that of those of securities firms. They are claiming that the introduction of discretionary trust similar to wrap accounts is not desirable at all with discretionary investment management and investment trust clearly distinguished in the Capital Markets Act. “Banks are frequented by customers who prefer low-risk investment and, as such, it is not desirable for them to provide discretionary trust, which can be invested in high-risk high-return products,” one of them mentioned, adding, “Banks need to first come up with investor protection measures and enhance their asset management capabilities before trying to enter the asset management market.”