Investment advice rules are eased

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Investment advice rules are eased

Banks are now allowed to give investment advice on specific types of financial products. And small companies can provide the same guidance, as long as they have the stipulated credentials and have 100 million won ($85,500) in capital.

The Financial Services Commission said the easing of the regulations is intended to help expand the financial market and will also give more people reasonably priced access to financial information.

The change is part of the FSC’s reform initiative for this year.

Starting in second half of this year, banks can profit from giving investment advice on savings accounts, funds and derivative-linked securities (DLS) and receive commissions on the coaching service. To date, banks were only allowed to offer investment advices in real-estate.

Banks were prohibited from giving investment advice since they have been the primary window for many clients in purchase financial investments. The authority believes the conflict of interest would make it difficult for the banks to provide neutral advice to clients that would be in the best interest of the client not the bank.

Under the changes, banks are still not permitted to sell stocks, bonds or derivative products as they are provided by existing investment consulting firms. Instead, banks can introduce clients to smaller advisory firms or refer them to independent financial advisors (IFA).

Any firm can be registered as an IFA as long as they have a minimum capital of 100 million won, a reduction from the current requirement of 500 million won. The FSC has, however, strengthened the qualification of the IFA employees, requiring firms to hire people who previously worked as an asset manager, analyst or an advisor at another investment consulting firm.

To remain independent, the IFAs are banned from receiving sales commissions from banks or financial product developers such as asset management companies. They are only allowed to be compensated by clients. Local banks or brokerage firms are banned from establishing IFAs.

The FSC also decided to allow artificial intelligence-enabled robo-advisor services to be included in the Individual Savings Account, the new wealth management and investment platform launched recently.

The current legal system in Korea allows robo-advisors to only assist human advisors. Financiers are banned from offering investment advice made solely by computer software. Only human fund managers can manage an account or asset advisors can give investment tips to clients, based on data analyzed by the AI system.

The FSC tested robo-advisor investment services in July to determine if they can replace human fund managers or analysts. Any asset management or investment advisory firms can join the testing session and prove the system’s stability by disclosing their own AI-managed investment portfolio online and managing it for at least three month.

Some 14 firms are scheduled to launch their own wealth management services, in which the AI automatically controls investment accounts, by end of this year. However, local financiers will be able to launch the new investment products fully managed by AI as early as October.


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