Accounts opened at branches automatically classified as 'managed,' drawing higher fees

Brokerages to be required to disclose fee differences at account-opening stage

Measures also planned for existing customers

Brokerage firms in Yeouido, Seoul [Getty Images]
Brokerage firms in Yeouido, Seoul [Getty Images]

Investors who open brokerage accounts at a branch will soon be able to choose a lower-fee "unmanaged" account, and brokerages will be required to clearly explain the cost difference upfront.

The Financial Supervisory Service said Wednesday it would reform the industry practice by which some brokerages charge higher trading fees on accounts opened at branch offices than on those opened online. The issue was raised at the fourth meeting of the Financial Consumer Protection Advisory Committee, held Aug. 27, and the FSS developed its reform plan based on the committee's recommendations.

An FSS review of trading fee structures for brokerage and pension savings fund accounts found that some firms were charging significantly higher fees on branch-opened accounts than on those opened online.

These brokerages automatically designated branch-opened accounts as "managed accounts" and applied higher trading fees to reflect the cost of in-person consultation and asset management services.

In one documented case, the trading fee rate for an unmanaged account opened online was just 0.010 percent, while a managed account opened at a branch carried a rate of 0.136 percent — more than 10 times higher.

The FSS said it would pursue regulatory reforms to address the problem.

First, disclosure requirements will be significantly strengthened. Brokerages will be required to compare and explain, at the time of account opening, the fee differences based on managed versus unmanaged account status, along with a list of available services. The fee differential must also be clearly stated in the terms and conditions or transaction disclosure documents provided at account opening.

Consumer choice will also be expanded. New investors opening accounts at a branch will be able to decide for themselves whether their account is designated as managed. However, if an unmanaged account is opened at a branch, a one-time account-opening service fee may be charged within a reasonable range.

Measures for existing account holders will run in parallel. Brokerages will be required to notify investors — via text message or mobile trading app pop-up alerts — that they hold a managed account and to inform them of their option to open a new unmanaged account if they wish.

"This reform is expected to expand investors' ability to choose their account type and reduce unnecessary trading fee burdens," the FSS said, adding that it would proceed with follow-up measures including terms-and-conditions revisions and compliance monitoring, while continuing to work toward establishing fair and reasonable industry practices.

Financial authorities also used the occasion to review cybersecurity response systems following a series of hacking incidents in the financial sector and to discuss follow-up measures. They plan to examine the results of a security checklist compiled by the FSS and discuss ways to prevent a recurrence of hacking incidents involving AI-assisted attacks.


jiyun@heraldcorp.com