In bank trust services for exchange-traded funds (ETFs), customers repeatedly engage in "buy-sell-buy-sell" sales practices—selling immediately after meeting a low target return and re-enrolling—leading to increased fee burdens on clients. The Financial Supervisory Service will complete inspections of six banks this month, then establish a task force (TF) to overhaul the trust fee system, shift performance evaluations toward fee-based metrics, and revise sales strategies currently left to individual bank employees.
According to financial authorities on the 5th, the Financial Supervisory Service plans to form a "Bank Trust System Improvement Task Force" as soon as its ETF trust inspections of KB Kookmin, Shinhan, Hana, Woori, SC First, and NH NongHyup Bank conclude this month. The scope covers not only ETFs but also bond-type products and Money Market Trusts (MMT), encompassing all bank trust products. Improvement measures are expected to be finalized and implemented as early as the second half of the year.
The task force will first examine the fee system. Currently, ETF trusts apply upfront fees, deferred fees, and early termination fees. Some products appear to refund a portion of the upfront fee when customers terminate early, but simultaneously charge an equivalent amount as an early termination fee, resulting in no actual refund.
The Financial Supervisory Service has found that banks fail to clearly explain why they maintain such practices. Consequently, it plans to reevaluate whether distinguishing between upfront and deferred fees is necessary, and will also review the structure of early termination fees and the system for re-enrolling trust accounts.
Bank employees' key performance indicators (KPIs) will also be shifted to prioritize customer returns. Currently, sales branches and employees receive higher evaluations when they collect more fees from customers, creating an incentive to recommend unfavorable upfront fees and low target returns.
The Financial Supervisory Service is preparing measures to ensure that customers' actual return rates, excluding fees, are reflected in KPIs. Until the system is improved, it has instructed banks to exclude upfront fee revenue from second-half KPIs or reflect it at the level of deferred fees.
Headquarters will also establish sales strategies. Currently, there are no bank-wide principles on whether to recommend long-term holdings or short-term responses based on market conditions; decisions rely solely on individual branches and private bankers (PBs), according to the Financial Supervisory Service. The task force plans to create a company-wide sales strategy that reflects market conditions and customer characteristics at the headquarters level, ensuring consistent application across all branches.
This move follows the consumer alert on ETF trusts issued last month. Sales of ETF trusts at six banks surged amid a bull market. Comparing year-end last year with May this year alone, sales volume increased 8.8 times. Due to frequent trading over 17 months, the average investor holding period was only 42 days. Despite the disadvantage of short-term trading, 91.7% of customers chose upfront fees. The actual fees received by banks were 7.2 times higher than the optimal fee aligned with customer holding periods.
During inspections of six banks this month, the Financial Supervisory Service will verify whether target returns were set too low and upfront fees collected, as well as whether obligations to explain fee differences were fulfilled. Inspection results will be reflected in task force discussions to transform the bank sales structure—which previously favored higher fee collection—into one that prioritizes increasing customers' actual returns.
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