![[펀드사고잔혹사]② “Performance takes precedence over customers”… Incomplete Sales Embarrassing Fee Competition](https://image.chosun.com/sitedata/image/202103/24/2021032402418_0.png "[펀드사고잔혹사]② “Performance takes precedence over customers”… Incomplete Sales Embarrassing Fee Competition")
Input 2021.03.25 06:00
Employees compete for fund sales kicked out by KPIs
The moral hazard of financial companies has risen on the cutting edge as controversy over incomplete sales such as foreign interest rate-linked derivatives (DLS and DLF) and Lime Asset Management’s insolvent fund situation has not ceased.
Employees of financial institutions in charge of fund sales focused on products that had higher commissions for product sales or good scores in the personnel evaluation, rather than the customer’s investment propensity. As financial companies’ employees are obsessed with their performance, incomplete sales are naturally inevitably increased.
One of the key factors for employees of financial institutions to put performance ahead of customers is the key performance indicator (KPI). KPI is a kind of scorecard that influences employee promotion and performance pay in the financial sector.
In the past few years, as interest earned by low interest rates continued to decline, banks began encouraging the sale of financial products. In order to increase non-interest income, such as commission income, banks gave high scores to employees who sold a lot of funds or stock-linked securities (ELS) when calculating KPIs.
The bank’s profit structure is divided into interest income and non-interest income, which is called the loan-to-deposit margin (the difference between the loan rate and the deposit rate). The core of non-interest income is the commission obtained from selling funds or derivatives, bancassurance, trust, and credit card business. The rest arises from securities and foreign exchange derivatives.
A senior official at a commercial bank said, “Until the introduction of the KPI, we weren’t really hung up on product sales. The unreasonable linking of individual employee’s product sales to performance provided a spark to the incomplete sales situation.” He also said, “Because of the pressure on performance, customers were pushed to the rear.”
Among the cases triggered by competition among employees, such as fees, sales of investment products in emerging countries, such as Brazilian bonds, are a representative case. Brazilian bonds have a sales commission of 1%, which is higher than that of North American or global funds (0.5~0.8%). Financial companies sold 8 trillion won worth of Brazilian bonds in Korea alone, but investors suffered huge losses.
Lee Hyo-seok, head of the Financial Industry Division of the Capital Market Research Institute, said, “As interest income decreased due to a fall in interest rates, banks tried to increase non-interest income, and in the process, sales of high-risk financial products through private bankers increased.” Most of these products are centered on fees, and the higher the fees are for high-risk products, so we focused on selling these products.
Private equity funds, which sold hundreds of billions of dollars, are also a result of the excessive sales behavior of financial companies to increase commission income.
In addition, according to data received from the Financial Supervisory Service by Democratic Party Rep. Park Yong-jin (National Assembly Political Affairs Committee), KB Kookmin, Shinhan, Hana, Woori, and NH Nonghyup Bank sold private equity funds worth 70,673.5 billion won for five years from 2015 to 2019. During this period, commission income exceeds 300 billion won. The fund-related income is estimated to be higher, considering the sales fees received during the fund subscription period.
According to the Korea Financial Research Institute, as of the second half of 2017, when the private equity market was in full swing, short-term performance such as non-interest income, attracting new customers, and expanding loan/receipt accounted for 54% of the total revenue in KPIs of seven major domestic banks. Occupied. On the other hand, the soundness of bank risk management was very low at 9.5% and customer protection at 1.8%.
◇ Financial sector strengthens sales responsibility for Buryaburya… Excluding sales performance from KPI
The financial sector is pushing for a renewal plan to put a brake on this short-term performance-oriented Do Not Ask Sales practice.
The representative plan is the’Exemplary Guidelines for Internal Control of Non-Deposit Products’ created by the Banking Federation and the Financial Supervisory Service in September of last year. The best practice is to increase the proportion of customer protection among KPI evaluation items that were focused on short-term performance.
There are also plans to protect elderly customers. When selling high-risk products that are inappropriate to the elderly, the results are not reflected in the evaluation, or a plan has been promoted to reflect only some of the results. This is a measure to improve the criticism that the elderly are the main targets of incomplete sales. As a result of analyzing dispute settlement complaints filed with the Financial Supervisory Service for the past five years at the Office of the People’s Power of People Kim Hee-gon, 782 cases, 40% of 1820 cases (from 2016 to the first half of 2020), were filed by elderly people aged 60 or older.
Securities companies are also increasing the proportion of consumer protection items in their KPIs, and reinforcing consumer protection through organizational reorganization or personnel management. Starting this year, as the financial authorities introduced the CCO (Consumer Protection Officer) system, companies with assets larger than a certain amount are obligated to appoint a CCO.
However, there are concerns that the pouring regulations will protect consumer rights and interests, but will excessively constrict financial companies’ product sales markets. Last year, the commission income of the four major commercial banks in Korea decreased by about 13%. After the private equity crisis, customers are reluctant to sign up for new products such as funds.
Nevertheless, from a long-term perspective, the general evaluation is that various changes, including KPI reorganization, will have a positive effect on financial companies. As incomplete sales are revealed later, consumer protection should be strengthened even if sales commission profits temporarily decrease, compared to receiving penalties or penalties and seriously damaging reputation.
“The basics of the financial industry are trust,” said Ha Jun-kyung, a professor at Hanyang University’s economics department.
On the other hand, on the 25th, the Financial Consumer Protection Act (Money Soo Act) will be enforced. In principle, the law made the six sales regulations applied only to some financial products (the principle of conformity, the principle of adequacy, the obligation to explain, the prohibition of unfair behavior, the prohibition of unfair solicitation, and the prohibition of false exaggerated advertising), in principle, applied to all financial products. In case of violation, sanctions are also greatly strengthened.