An expert suggested that, when selling high-risk funds, a method that alerts investors to the possibility of losses before revenue could steer them toward safer investment products such as diversified portfolios.
At the Financial Supervisory Service in Yeouido, Seoul, on the 13th, the Financial Consumer Protection Forum for shifting to financial supervision centered on financial consumer protection discussed ways to strengthen the effectiveness of consumer protection at the development and sales stages of financial investment products.
Choi Seung-ju, a Seoul National University professor who presented that day, said that, in addition to mandatory regulations such as selling equity-linked securities (ELS) only at bank hub branches, "nudge" regulations that guide investors to make better choices are also needed. The nudge theory is a behavioral economics term that explains the power to elicit wise choices without coercion or incentives.
Choi said that when the existing sales method was supplemented with an additional brochure that visualizes the profit and loss structure and provides loss information first, investors tended to diversify their portfolios rather than concentrate on a single product. Investors who received the brochure were 54% to 77% more likely than before to sign up for products other than ELS.
It was also confirmed that when ELS products with the possibility of principal loss were presented side by side with principal-guaranteed products, investors aged 65 and older tended to be more likely to choose safer products.
Choi said, "As a result of conducting the experiment in a way that provides the bare minimum of information without disrupting the existing sales process, it was possible to have vulnerable groups invest in safe assets," and added, "Among the various improvement plans, it is necessary to judge which ones are appropriate for policy goals and reflect them."
Meanwhile, in the case of overseas real estate funds classified as high-risk funds, assets under management surged during the real estate market upswing from 2016 to 2019, but after the market slump, refinancing struggled and some funds incurred losses.
The Belgium fund of Korea Investment & Securities that recently became an issue invested in the long-term leasehold of a building in Brussels, Belgium. However, last year, due to non-repayment of the loan, an event of default (EOD) occurred, and as the senior lender moved to forcibly dispose of the asset, it resulted in a total loss. The Financial Supervisory Service (FSS) has launched on-site inspections to examine suspected misselling by financial companies that sold the Belgium fund.