Kofia trying to boost Korean funds’ long-term appeal

The Korea Financial Investment Association (Kofia), the main body for financial industry lobbying in South Korea, is drafting several ideas to present to authorities aimed at promoting longer-term investments.

This comes at a time when executives at fund-management companies express frustration with Kofia's ability to represent their interests. Under the 2009 Capital Markets Consolidation Act (CMCA), which was a generally well received revamp of securities law, the asset management industry's own association was merged with that of the securities companies and futures brokers into Kofia.

This was seen as efficient, in keeping with regulation that was more comprehensive, but fund execs feel their voices have been drowned out by those of the more-powerful securities firms. Executives tell AsianInvestor that they find Kofia increasingly unlikely to pay attention to their arguments.

Kim Cheol-bae, managing director at Kofia's collective investment service division, says the association's newly appointed chairman, Park Jong-soo, a former CEO of Woori Securities & Investments, acknowledges that Kofia should better represent asset managers.

To that end, Kofia has begun looking at promoting three ideas. First is to promote retirement pension plans by expanding distribution opportunities. Today banks and securities companies distribute almost all fund products in Korea. The law does not accommodate a funds supermarket or an independent financial adviser, because entities are not allowed to sell funds, insurance, banking and securities products.

Kim says Kofia is in preliminary talks with the Financial Supervisory Service about introducing amendments to the CMCA that would make this possible.

Second is to encourage domestic institutional investors to outsource more to fund managers, although Kim declined to say how this might be done.

The third measure seems to be the most concrete, and that is to win tax breaks for investing in 10-year regular savings plans (RSPs) to maturity. This means tax-free treatment for the first W2.4 million per annum invested in these funds.

Kim says the government has approved the idea, and the measure is working its way through the National Assembly. If approved it could be enacted as soon as the summer. It is unclear, however, whether banks, which are the main distributors of three-year RSPs, have any appetite for trying to sell such long-term products.

Kim's division has also been engaged in ways to boost open architecture, so that banks and securities firms offer more best of breed funds, and not just affiliated products. Initial ideas included mandating a cap on financial firms' selling affiliated products, at least in the corporate pensions space.

This has been rejected for the cash market in favour of rules that require more disclosure regarding funds' rates of return, fees and portfolio composition, and making clear which ones are affiliated versus third party.

However, Kofia and the FSS are in talks about ensuring pension administrators -- which are the big insurance companies and banks -- move no more than 60% of corporate pension money into affiliated products.

What this exactly means has not been determined: is it number of products, AUM for a corporate plan, individual account AUM, or other measurements? Kim says at this point no details have been decided.