Many of these firms are now setting up wealth management divisions, while major banks, such as Hana, Woori, Shinhan, and Kookmin Bank, have been increasingly developing their private banking arms.
In the nascent but rapidly growing South Korean wealth management industry, there is still a general confusion about what really constitutes private banking, according to Bok-Ki Jung, CEO at Citi Private Bank in Seoul. Securities companies have recently started selling financial products and have immediately began to call themselves “private bankers” or “wealth managers”, he says.
“The history of private banking and wealth management is too short in Korea. The banks are familiar with loans and deposits, and sometimes mutual funds, while securities companies have knowledge of stocks, at times of mutual funds. None of the institutions can manage total wealth,” believes Mr Jung.
The concept of private banking also remains unknown among high net worth (HNW) investors. “Clients like managing their money by themselves but are just focused on the best stock, on the yield and do not have a portfolio view,” he adds.
Banks and securities companies segment their client base simply according to size of client assets, ignoring the individual’s total net worth. Citi, on the other hand, targets rich individuals with wealth of over $10m, for whom the bank provides highly customised personalised portfolios on an advisory basis.
As in most of Asia, one of the major issues in the South Korean wealth management market is the aggressive poaching of private bankers, because the pool of experienced advisers is very small. This has recently led top securities companies, such as Samsung, Daewoo and Woori to raise levels of guaranteed bonuses to attract new talent.
At Citi, says Mr Jung, the compensation of advisers is based on a balanced score card, which sets a number of yearly financial and non financial targets. Offering more money is not the right type of incentive structure, he says, as this leads advisers to just focus on their remuneration, paying scant regard to portfolio returns or clients’ expectations. This is not how private banking should work, he says.
Still, securities companies boast the most experienced investment advisers, despite their lack of familiarity with banking products. “We are trying to recruit new people from securities companies, but it is not easy because there they are paid more,” admits Mr Yung.
Major banks, such as Shinhan, are now stepping up their efforts in educating advisers to convert them into trusted private bankers. “Scouting of private bankers is a very sensitive issue in Korea,” admits Seung Bong Lee, general manager, private banking department at Shinhan Bank. “We are very focused on education and that’s why other firms try to poach our people. We send our advisers to universities, to the Hong Kong campus, where they are comprehensively trained.”
Whether securities firms have better private bankers than the banks is questionable, says Mr Lee, as is shown by Samsung Securities’ massive poaching of senior advisers from Hana bank, for example.
People jumping from one job to another, lured by better money, may be an accepted practice in the West but not in Korea. “In the East, this is a not the right way of doing business, a company has to be responsible towards the society and have a good attitude to business. Business is not just about money. Values such as the relationship with the customers and ethics are very important in the Korean market,” explains Mr Lee.
At Shinhan Private Banking, junior private bankers are selected internally based on their loyalty, integrity and diligence. Only the successful ones are then trained to become fully fledged private bankers, explains Mr Lee. However, it is undeniable that the war for talent is impacting incentive policy at Shinhan. “We are introducing a new salary system this year to raise incentives,” he says, explaining that so far, the best advisers were mainly compensated through promotion.
Investment trends
Banks and securities companies dominate the Korean mutual fund distribution landscape. Together they account for the distribution of 92 per cent of the total $300bn in mutual fund assets, according to Kofia, the Korea Financial Investment Association. Both types of institutions are key targets of domestic and foreign fund management companies, which have been increasingly attracted by the fast-growing market. Today, most major global fund management companies have a presence in Korea.
Although banks’ branch networks are much larger and have widespread coverage, investors perceive securities companies as having a higher level of investment knowledge and expertise. This is confirmed by statistics. In 2007, the 60 securities companies accounted for distribution of 52 per cent of mutual fund assets, while the banking sector – dominated by five major institutions – accounted for 43 per cent. By the end of 2010, the percentage had grown to a 60 per cent share for securities companies versus 31 per cent for banks. Insurance companies, merchant banks and futures houses account for the remainder.
