Enhancing the competitiveness of public offering funds… Introduction of performance-linked operation fees

The financial authorities are trying to strengthen the competitiveness of the public offering fund market, which has shrunk due to the decline in the rate of return. The plan is to introduce a performance-linked management fee in which the management fee changes quarterly in connection with the fund management performance.

On the 31st, the Financial Services Commission unveiled a plan to enhance the competitiveness of public offering funds, including these details. This is a plan discussed at the Financial Development Council’s Capital Sub-Section Meeting, and its main focus is to create an investor-centered public offering fund environment.

The Financial Services Commission said, “The public offering fund is a traditional asset management method of the general public that allows small investments and is suitable for pursuing medium-risk and mid-return, but the public offering of individual investors due to insufficient performance in the management of the public offering fund, sales channels centered on banks and securities companies, and lack of product diversity. The preference for the fund has greatly declined,” he said. “It is necessary to support the stable wealth growth of the people through a public offering fund that is managed by experts and has the advantage of diversified investment.”

The proportion of private investors’ balances in public offering funds is continuously decreasing from 51.0% in 2015 to 47.6% in 2019 and 41.5% in 2020.

First, sales fees and commissions will be reorganized around investors.

In the current system, sales fees are determined at a single rate set by the manager at the time of fund registration. In addition, a problem has been raised that the seller is more likely to recommend a fund that pays higher fees and fees than a fund that is advantageous to investors, as it is receiving sales fees and commissions regardless of performance.

In the future, it will be supplemented to receive sales compensation directly from the fund, rather than receiving sales compensation from the fund, so that investors can clearly recognize the sales fee.

It is reorganized so that various remuneration rates for each vendor can appear from a single remuneration rate set by the manager.

Performance-linked sales remuneration and commissions are also allowed when certain requirements are met, in order to match the interests of investors and sellers. Through online sales channels such as fund supermarkets and online advisory platforms, the company plans to increase investor convenience at a relatively low cost.

Consumers’ choice of public offering funds is also expected to increase. By diversifying products such as MMFs and ETFs, which are highly demanded by investors, foreign currency denominated MMFs, stock-type active ETFs, ETFs with an expiration date, and hybrid ETFs will be introduced.

The authorities explained that they will create a new type of fund that considers currency exchange and operational elasticity by easing regulations on existing closed alternative investment public offering funds that are restricted in redemption.

A plan was also prepared to improve accountability and efficiency in fund management.

In order for managers to actively manage their own assets, it was decided to introduce incentives according to the size of their own property investment and to add a’performance-linked management fee’ type. In order to increase the efficiency of fund management, the current procedure, which used to be difficult to change investment strategies, is also simplified.

The authorities plan to announce the legislative revised matters by April, and complete the revised matters by the third quarter for the matters requiring revision of sub-regulations such as the enforcement decree. In addition, the matters decided to be autonomously promoted with the industry will be prepared within the second quarter.