As the "return-to-domestic-market account" (RIA) enters its third week, small and midsize securities firms appear to be shouldering only the system-building expense without seeing the customer acquisition gains that large firms are enjoying.
According to the financial investment industry on the 18th, as of the 16th, the number of RIA accounts opened at large securities firms such as Mirae Asset Securities, Korea Investment & Securities Co., NH Investment & Securities, and Samsung Securities topped 10,000. In contrast, small and midsize securities firms saw, at most, only several thousand RIA account openings. Quite a few securities firms have only a few hundred RIA accounts opened.
An RIA is an account that offers tax benefits when an investor sells overseas stocks and uses the proceeds to buy domestic stocks, a policy product aimed simultaneously at revitalizing the domestic stock market and stabilizing the foreign exchange market.
Small and midsize securities firms say the system is delivering limited customer inflows, contrary to its intent. An official at a small securities firm said, "A considerable number of investors are investing in U.S. and domestic stocks at the same time, and RIA accounts are often opened with the investor's existing transaction securities firm, making it structurally difficult to expect new customer inflows," adding, "It is a business with little practical benefit."
Even so, securities firms have poured in not-insignificant expense to build the systems. Because it is a government-led policy, it was hard not to participate. The official explained, "Because it was a policy program, participation was unavoidable."
RIA accounts include functions such as automatically converting dollars generated from selling overseas stocks, requiring work that went beyond simply upgrading existing systems to effectively building new ones. Another securities firm official said, "Because the capital gains tax framework differs from the past, we had to design a separate IT logic," adding, "The direct and indirect expense burden was considerable."
In particular, detailed tax standards were not clearly organized even after the system launched, causing significant confusion on the ground. An official at a small securities firm under a conglomerate said, "There was no clear guideline on whether the one-year holding requirement after selling overseas stocks and buying domestic stocks should be based on the settlement date or the purchase date," adding, "Even when we asked the relevant authorities, the answer was that it was left to securities firms' discretion."
Customer complaints stemming from firm-by-firm standard differences are also continuing. The official said, "Standards differ by company, so we hear complaints like, 'Why is it applied differently here?'" adding, "We have kept revising the standards even after the system launched."
There is also no small inconvenience arising from transferring overseas stock accounts to other firms. Because each securities firm uses a different method to calculate capital gains tax on overseas stocks, it is not easy to transfer overseas stock accounts to another firm. Investors must go through cumbersome procedures, such as visiting a branch, to move overseas stocks to another firm's account.
On this, an official in the securities industry said, "In the case of domestic stocks, stock information is automatically transferred through Korea Securities Depository (KSD), but it is not easy to transfer overseas stock accounts to another firm," adding, "Unless the depository shares data with an institution like the U.S. depository, it is practically difficult to fix, and we are facing challenges."
An official at a securities firm ranked outside the top 20 by equity capital said, "In the process of preparing for the RIA launch, I understand that large firms received the standards and requirements first," adding, "Smaller firms like us received the details late, so system development and event preparation were extremely tight."
Experts are concerned that the burden on small and midsize securities firms is growing at a time when the RIA system is not expected to have a large effect. Lee Juneseo, a professor of business administration at Dongguk University, noted, "If the RIA account is extended for more than a year, it could become an incentive for Korean retail investors trading U.S. stocks, but the most important variables in investment decisions are ultimately the exchange rate and the investment returns of U.S. and Korean stocks."