Brokerages fight to keep customers from banks

In the wake of the government’s announcement that it will allow commercial banks to invest their customers’ money at their own discretion, the local brokerage industry has rushed to keep their investment customers from moving to commercial banks for individual savings accounts (ISA).

Until now, securities, asset management, investment consulting companies and futures firms have been the only parties allowed to make investment decisions. Commercial banks were restricted to investment consulting.

But under the new ISA system, which officially launches March 13, commercial banks and securities firms will begin competing for more customers to manage their assets.

The ISA is an integrated banking platform that manages a number of different financial accounts, from ordinary savings accounts to securities and repurchase agreement (RP) accounts, in one platform by signing up with only one institution - either a bank or brokerage firm. The government exempts tax on profits made through the ISA system up to 2 million won ($1,600).

Anyone at any income level can sign up, but each person can hold only a single ISA.

The account holder has to maintain an ISA for more than five years to benefit from the tax break, but they are free to switch ISAs once they completely close their previous account.

KDB Daewoo Securities started taking preorders on Monday through March 13, offering 5 percent interest rates on repurchase agreements up to 5 million won for the first 15,000 customers who sign up for an ISA on the firm’s website. NH Investment & Securities is also offering an opportunity for early birds to sign up for RPs with a 3.5 percent interest rate, while Hana Financial Investment offers 4 percent interest rate on RPs. These high-yield RPs reach maturity within three months.

Samsung Securities is also offering an opportunity to invest in high-yield RP products, while Korea Investment & Securities, Mirae Asset Securities and Shinhan Financial Investment opted instead to offer gift coupons worth 5,000 won to 10,000 won on pre-subscribers to its ISAs.

Analysts warn that such marketing strategies are inefficient, saying that the firms should instead strengthen their asset management and allocation capabilities.

“Banks will win most of the ISA market because Korean financial industry has evolved based on banking sector,” said Kim Jae-chil, head of the fund and pension fund research division at the Korea Capital Market Institute. “It is unavoidable because they are more familiar to regular people and have dealt with wider variety of financial products through the financial affiliates [under the financial holding company system].

“Securities companies should focus on fostering asset allocation capabilities,” Kim added, saying that the firms are already more capable in this area than banks after developing their investment banking and wrap account businesses in recent years. “If smaller-asset holders become more familiar with investment as the ISA market grows in coming years, those people will come back to securities firms.”

BY KIM JI-YOON [kim.jiyoon@joongang.co.kr]