Service fees bundled into trading commissions, confusing investors

12 brokerages charge for service, earning 67.1 billion won in fees last year

Auto-conversion to paid plans after free trials to be banned

The Financial Supervisory Service headquarters in Yeouido, Yeongdeungpo-gu, Seoul [Financial Supervisory Service]
The Financial Supervisory Service headquarters in Yeouido, Yeongdeungpo-gu, Seoul [Financial Supervisory Service]

South Korea's financial regulator has moved to overhaul the way brokerages charge for stock information services, after cases emerged of investors unknowingly paying fees for stock-picking and supply-demand analysis tools they had signed up for and forgotten about.

Because the fees are bundled into standard trading commissions, investors often have no way of knowing they are paying a separate charge. The Financial Supervisory Service said it would strengthen disclosure requirements before and after enrollment and ban the practice of automatically converting customers to paid plans once a free trial ends without their explicit consent.

The FSS said Wednesday it had reviewed industry-wide practices for stock information services following a surge in related complaints and had drawn up a set of remedial measures.

Stock information services are paid offerings through which brokerages supply customers with investment-related content such as stock recommendations and supply-demand analysis. Brokerages either generate the content in-house using AI and other tools or partner with external quasi-investment advisory firms to deliver it.

The review was triggered by a complaint from an investor who said they had signed up for a brokerage's stock information service 10 years ago, received no subsequent notifications, forgotten about the subscription and quietly paid fees for years.

The FSS found that some brokerages informed customers of fees only at the time of sign-up and immediately after, with no follow-up notification procedures in place. Regulators also confirmed cases in which customers were automatically switched to paid memberships after a free trial period ended without any explicit consent.

Twelve brokerages currently operate paid stock information services. As of the end of last year, about 103,000 customers were using such services, accounting for 0.23 percent of the total customer base. The fees those brokerages collected from the services reached about 67.1 billion won ($49.5 million) over the same period.

By the end of this year, the number of users is estimated to reach about 107,000, with annual fee revenue projected to climb to around 150 billion won — a pace of revenue growth that far outstrips the increase in the user base.

The core problem lies in how fees are structured. Brokerages charge either a percentage-based fee of roughly 0.05 to 0.25 percent per service or a flat monthly fee of around 10,000 won on top of the standard trading commission. Some percentage-based services replace the existing trading commission entirely, making it difficult for investors to tell how much they are actually paying for the stock information component.

Under the percentage-based model in particular, costs can rise sharply with trading volume, since fees are proportional to the transaction amount.

In a hypothetical example provided by the FSS, an investor subject to a base trading commission rate of 0.015 percent who trades 50 million won worth of shares a month would pay 7,500 won in commissions. But if that investor subscribes to a stock information service with a fee rate of 0.1 percent, the total charge rises to 50,000 won — an extra 42,500 won compared with not subscribing.

An investor trading 10 million won a month would pay a base commission of just 1,500 won, but the same percentage-based service would bring the total to 10,000 won. If that investor instead opts for a flat monthly fee service at 10,000 won, the combined cost including the base commission comes to 11,500 won.

In response, the FSS said it would significantly strengthen the disclosure process before and after enrollment so investors can clearly understand what they are actually paying.

Before sign-up, brokerages will be required to present the fee impact using concrete trading examples — not merely stating the service fee rate, but showing a side-by-side comparison of the total cost before and after enrollment, combining the trading commission and the service fee.

After enrollment, brokerages will be required to regularly notify customers of their subscription status and fee burden via text message or mobile app alerts. Those notifications must distinguish between the stock information service fee and the base trading commission.

When investors check their trading commissions through a mobile trading system (MTS) or home trading system (HTS), they must also be informed that the stock information service fee is included. If an investor requests a breakdown, the brokerage must provide the base commission and the service fee separately.

The FSS is also cracking down on the practice of using free-trial promotions to lock in subscribers. Going forward, brokerages will in principle be required to suspend service once a free trial ends. Converting a customer to a paid plan will require explicit consent, and brokerages will no longer be permitted to continue providing service to customers who have not indicated they wish to continue.

Existing subscribers will also receive a blanket notification by text or messaging app informing them of their subscription status and how to cancel. The measure is aimed at reducing cases in which customers pay fees for services they have not used for an extended period.

The FSS said it would work with the Korea Financial Investment Association and the brokerage industry to finalize implementation details, with the aim of completing the regulatory overhaul in the first quarter of next year. It also plans to monitor compliance at individual brokerages on an ongoing basis.

The FSS said it expects the changes to allow investors to make fully informed decisions about whether to subscribe to stock information services, reducing unnecessary fee burdens.

The FSS has also recently signaled a tougher stance on accounting fraud. FSS Governor Lee Chan-jin said Tuesday at a meeting with the chief executives and experts from eight accounting firms that conduct external audits of listed companies that the regulator would apply a zero-tolerance principle to cases of intentional accounting fraud. "For accounting firms with repeated audit failures, we will further strengthen supervision to restore order in the accounting industry," Lee said.


th5@heraldcorp.com