The Financial Supervisory Service (FSS) is concerned about competitive fee cuts among asset management companies after Mirae Asset Global Investments drastically reduced the fees for its exchange-traded funds (ETFs) to one-tenth. Due to the marketing strategies of private companies, the FSS finds it difficult to intervene directly, but there are concerns that this could lead to a monopoly over the long term. The ETF business is already challenging to make profitable, and further reductions in fees could block new entrants and likely lead existing companies to withdraw due to poor performance.
Mirae Asset Global Investments, the second-largest in the industry, has started considering additional fee reductions in response to the number one player, Samsung Asset Management, significantly lowering its fees. This indicates that the fee competition the FSS was worried about is materializing.
According to the financial investment industry on the 6th, Samsung Asset Management is reviewing additional fee cuts to prevent losing clients to other companies. This is a measure taken after Mirae Asset Global Investments lowered the total fees for its TIGER U.S. S&P 500 and U.S. Nasdaq 100 ETFs from 0.07% to 0.0068% on that day. Excluding what management companies and designated participant companies take from the 0.0068% fee, the pure share for Mirae Asset Global Investments is only 0.0002% of the total assets under management (AUM).
Generally, asset management companies are required to report to the FSS in advance when they lower ETF fees to the lowest levels in the industry. It is reported that Mirae Asset Global Investments emphasized the necessity of fee reductions to the FSS based on the extinction of overseas stock-type total return (TR) ETFs.
TR-type products allow dividends to be automatically reinvested without the investor receiving them, which can lead to tax deferral benefits. However, last month, the Ministry of Strategy and Finance included a plan to impose a 15.4% dividend income tax on overseas TR-type ETFs in its '2025 Tax Law Amendment Follow-up Enforcement Decree.'
In other words, as dividends are mandated by the tax law amendment, and TR-types may disappear entirely, Mirae Asset Global Investments lowered its fees out of concern that investors would leave. It persuaded the FSS by citing that it tracks the largest Asia-based Standard & Poor's (S&P) 500 and Nasdaq 100 indices.
This indicates that the fee war among asset management companies, which had been subdued since the first half of last year, is reigniting. The ceasefire at that time was due to the FSS. In April of last year, Samsung Asset Management reduced the total fees for four ETFs tracking representative U.S. indices from 0.05% to 0.0099%. A fee below 1 basis point was a first in the industry.
Samsung Asset Management explained that its move was intended to apply the lowest fees to enhance long-term returns for individual investors, but the essence was to secure its position as number one. The intent was to absorb funds from competitors like Mirae Asset Global Investments and smaller asset managers to increase its market share from about 40%. This is similar to the current situation for Mirae Asset Global Investments. In the long run, the exit of smaller asset managers from the ETF business could lead to monopoly or oligopoly, making it not an unfavorable option from the managers' perspective.
However, for consumers, a decrease in the number of service providers may leave them in a disadvantageous position. With fewer providers, there's a greater likelihood that fees will rise, and the choices of products will decrease. The FSS summoned the CEOs of asset management companies four months after Samsung Asset Management lowered its total fees for this reason.
At that time, the head of the FSS said, 'Concerns over competitive overheating are growing' and urged asset managers to take a responsible role to ensure that ETFs could become reliable and sound investment tools. However, six months after the FSS asked for the healthy growth of asset management companies, Mirae Asset Global Investments pulled the trigger on the second fee war.
The FSS is worried about the bloodbath competition in the ETF industry. After a discussion on 'Revitalizing the Korean Stock Market' held at the Korea Exchange in Yeouido, Seoul, the head of the FSS noted, 'In the short term, excessive competition, which is a response to another's actions, can send the wrong signals to consumers' and stressed that qualitative service improvements, such as creating quality products, should not be overlooked.
'I had sessions with asset managers who seem to be at risk of excessive competition,' he said, noting that while the FSS cannot intervene directly, preventing the market from becoming muddled without qualitative growth is a way to gain investor trust.
Due to the fee reduction, the annual fee revenue from two ETFs (TIGER U.S. S&P 500 and U.S. Nasdaq 100) at Mirae Asset Global Investments is estimated to decrease by over 6 billion won. The annual revenue for the TIGER S&P 500, with an AUM of over 2 trillion won, is expected to shrink from 3.92 billion won to 390 million won; the TIGER Nasdaq 100, which has an AUM of 3 trillion won, is projected to decrease from 2.8 billion won to 280 million won.
Mirae Asset Global Investments claims it has no problem, pointing to the existence of zero-fee products in the U.S. However, the situation is different because the U.S. can generate revenue in ways other than fees.
When an asset management company operates a U.S. stock-type ETF containing companies like Apple and Microsoft, it can lend stocks to customers such as securities firms. This is a service underlying short selling and involves earning fees, but U.S. asset managers can retain these fees entirely, whereas in South Korea, this is not permitted. In South Korea, regulations require ETF loan income to be distributed to investors as dividends. Low ETF fees in South Korea are a direct hit that undermines the revenue of asset managers.
Considering the scale as well, U.S. ETFs have larger AUM, enabling a high-volume-low-margin strategy. Vanguard's S&P 500 ETF, VOO, has an AUM of about $621.99446 billion (approximately 899.6528 trillion won) and the Nasdaq 100 ETF, VGT, has an AUM of about $85.55 billion (approximately 123.6881 trillion won). The S&P 500 ETF is 115 times larger than Mirae Asset Global Investments' ETF, while the Nasdaq 100 ETF is 26 times larger.
An official from an asset management company stated, 'The movement of Mirae Asset Global Investments is observed to prompt Samsung Asset Management's additional fee reductions' and added, 'A bloodbath competition due to a chain of fee reductions undermines the investment capability for product development of asset managers, which ultimately does not benefit investors in the long term.'