Wealth management focus urged

Investors should choose brokerage firms that focus on the asset management businesses, said a report published on Wednesday by Macquarie Securities.

The global firm said that wealth management and investment advisory services will be the most crucial growth engine for local brokerage firms, as the demand for money management has recently exploded in Korea with near-bottom interest rates and new financial services such as individual savings accounts being introduced.

“It is too early to expect wealth management to be a game changer, but the fast-growing wealth management business should gradually affect investor preferences,” said Joe Huh, an analyst at Macquarie Securities Korea. “The wealth management business will continue strengthening while brokerage-oriented companies will decline.”

The yield from local brokerage firms was mostly on trading transaction service fees, followed by initial public offerings (IPO) brokerage service fees, and the asset management and investment banking businesses.

Some 56 brokerages in Korea made an operating profit of 7.9 trillion won ($6.6 billion) last year, up almost 36.5 percent compared to a year earlier, according to the Financial Supervisory Service data on Tuesday.

Samsung, NH, KDB Daewoo Securities were the top three brokerages that profited most from trading transaction fees.

However, the Macquarie report emphasized that investors should pay attention to the fact that the brokerage fees in annual earnings continued to decline in the past decade, from 51 percent in 2005 to 31 percent last year.

“We think the trading operations environment will remain unfavorable throughout 2016 as volatility in market rates remains high and market downturns provide downside risk to ELS [equity-linked securities] operations,” Huh wrote.

He expected revenue from brokerage commissions will decline by 13 percent year-on-year this year, and the net interest income will grow slower.

Huh estimated revenue from wealth management will grow an average of 15.3 percent annually for the next five years, although the money management business consists of only about 10 percent in annual earnings of local brokerages last year.

Huh suggested the investors buy shares of Korea Investment Holdings, a parent company of Korea Investment & Securities, and sell shares of NH Investment & Securities and Mirae Asset Securities.

Korea Investment Holdings is aggressively moving towards the asset management businesses. Some 25 percent of the firm’s 2015 revenue last year was made from asset management.

The Macquarie report recommended selling Mirae Asset as it is slated to complete acquiring Korea Development Bank’s shares of Daewoo Securities by the first half this year and Daewoo traditionally has business strength in brokerages.

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