Sales of target-conversion wrap accounts (Wrap account, hereinafter referred to as target-conversion wraps), products that convert investment funds into safe assets once the target return is achieved, have surged recently. Sales by major securities firms alone reached 10 trillion won in June. These sales also contributed to their first-half performance. However, concerns are being raised about potential side effects such as incomplete sales resulting from large-scale marketing efforts, drawing attention.
According to the financial investment industry and financial authorities on the 18th, major securities firms including Korea Investment & Securities, Mirae Asset Securities, Samsung Securities, NH Investment & Securities, KB Securities, Shinhan Investment Corp., and Hana Securities sold a total of 9.8 trillion won worth of target-conversion wraps in June.
Korea Investment & Securities recorded the highest sales, approaching 4 trillion won in June alone, followed by Samsung Securities and KB Securities with approximately 2 trillion won each, and NH Investment & Securities with about 1.3 trillion won.
Target-conversion wraps are a type of wrap product where securities firms entrust customer funds to construct and manage portfolios. Once the target return (annual 5% to 8%) is achieved, high-risk assets such as stocks or ETFs (exchange-traded funds) are automatically converted into safe assets like bonds or money market funds (MMFs).
From the securities firms' perspective, they collect fees upfront and receive additional fees once the target return is achieved. This structure has led to concentrated sales through branch offices since last year. As the stock market surged sharply in the first half of this year, more customers who met their targets canceled their accounts and re-subscribed, further intensifying on-site sales competition.
The financial investment industry estimates that major securities firms recorded sales revenue of approximately 20 trillion to 30 trillion won from target-conversion wraps in the current year alone, including June.
In fact, NH Investment & Securities announced in its second-quarter earnings report that financial product sales commissions reached 76.8 billion won, a 56.3% increase from the previous quarter, driven by expanded sales of target-conversion wraps. Last month, the firm invited target-conversion wrap customers to its Seoul Yeouido headquarters to provide special management, including guidance on investment strategies amid domestic and international stock market volatility.
Korea Investment & Securities also recorded its highest-ever asset management (WM) profits due to strong sales of target-conversion wraps. In the second quarter, profits reached 227 billion won, more than double the previous quarter's 105 billion won and over five times the 43 billion won from the same period last year. Samsung Securities also saw its second-quarter asset management profits rise to 94 billion won, approximately triple the 36 billion won recorded in the same period last year.
Thus, the financial investment industry believes that target-conversion wraps have made a significant contribution to the upward trend in securities firms' performance. However, concerns are being raised about the need for risk checks as aggressive sales efforts have been carried out on-site recently.
Specifically, since many products were sold to customers, there may be cases of incomplete sales during the marketing process, such as implying potential losses or guaranteeing target returns. There is also an opinion that explanations regarding the high initial allocation to high-risk assets might not have been adequately conveyed when only the target return was emphasized.
Moreover, achieving the target-conversion wrap's target return was acceptable when the domestic stock market surged sharply in the first half of this year. However, as the market has recently entered a correction phase, it is estimated that many customers who subscribed at peak levels have suffered significant losses.
A securities industry official stated, "Target-conversion wraps are legal products with fixed target returns and relatively low risk, but they do not guarantee either the target return or principal." He added, "As sales have increased significantly, voices of self-reflection regarding potential issues arising during the process are being heard within the industry recently."
in STOCK
