As the number of high-net-worth individuals in South Korea continues to grow, how will local and foreign players capitalise on changing investment preferences and the rise of fintech? Elliot Smither investigates.


Wealth managers in South Korea can sense an opportunity. As the number of high-net-worth individuals (HNWIs) in the country continues to rise – reaching almost 193,000 according to Capgemini (see chart) – they are having to contend with historically low interest rates, the economic slowdown in China and worries over the state of the global economy. This combination of a rising client base and a volatile investment climate should prove to be an ideal environment for the continued evolution of the wealth management industry in the country.

The South Korean wealth management scene is dominated by domestic firms. Last year saw the merger of Hana Bank with Korea Exchange Bank to form KEB Hana. Prior to the merger, Hana already possessed the most HNWI clients of any South Korean bank, a position it has now consolidated. Other major players include Shinhan Bank, Woori Bank and Kookmin Bank, with other financial firms such as Mirae Asset and Samsung also offering services to wealthy individuals.

“As in other markets, more consolidation can be expected in Korean wealth management,” says Alois Pirker, research director at the wealth management practice of Boston-based Aite Group.

Competition in the wealth management sector is starting to hot up, according to Jinhee Suh, head of global business at Seoul-based Korea Investment Management, as many local institutions are starting to offer services as an important revenue pipeline. “Some of them are expanding their wealth management services into non-financial areas to differentiate them from the competition,” she says.

Foreign exit...

Although foreign banks were among the pioneers of wealth management in South Korea, most have now pulled out. There are exceptions, such as Citibank and Standard Chartered, but most of the big global names in wealth management – such as UBS, Credit Suisse, HSBC and Barclays – are either not present in South Korea or only there in a limited capacity.

“Wealth management is very much relationship-based and strong local language skills are required,” says Joong Ho Park, a principal at consultants Oliver Wyman, who specialises in corporate banking and wealth management practice. “This is where local firms are stronger than the global players. While some global players may have strong product leadership and/or ‘advice’, I don’t think Korean HNWIs are ready for that yet.”

“Foreign banks did enter Korean wealth management, but due to their limited understanding of the Korean market, they were unable to solidify their position,” says Samuel Do, manager at Seoul-based Shinhan Private Wealth Management. “Standard Chartered and Citibank are foreign banks that do currently offer wealth management services, but compared with the domestic banks, their offerings are very limited.”

But foreign banks do have their advantages, argues Hojune Chang, head of wealth management at Standard Chartered Bank Korea. The firm offers wealth management services in 56 cities across 23 markets and believes this network delivers clients an in-depth analysis of world markets and the ability to identify global opportunities. 

...or advantage? 

“As we operate on open architecture, we are able to provide our clients a range of wealth product providers, and to source them at competitive rates without having to push any internal funds,” says Mr Chang. He does admit that local banks are boosted by their branch networks, which remain a powerful driver of wealth management business, while securities companies have been “aggressive” in pushing their equity trading capabilities as their key strength in the battle for customers.

Global banks are also able to offer powerful research networks and advanced investment advisory solutions, adds Valentin Valderrabano, head of retail banking for Citibank Korea. “We also provided access to a diverse set of currency transfer and foreign exchange services through our global platform,” he says.

Just how useful these services are to HNWIs right now is debatable though, with most continuing to hold the majority of their assets in property and bank deposits, although there are some signs that this is slowly changing as investors become more sophisticated.

Real estate continues to be the major asset class for wealthy Koreans, who tend to hold a higher proportion of their assets in the sector compared with their Western counterparts. These levels are starting to gradually decrease, despite an uptick in 2015 (see chart), as is the way investors access the property market.

Korea wealth management charts

“Previously they directly purchased downtown city apartments as well as land targeted by the government’s development plans, which promised long-term price increases,” says Ms Suh at Korea Investment Management. “However, recently they have turned to structured financial products related to real estate, for example REITs [real-estate investment trusts], to avoid the complexity that comes from directly managing properties.”

She adds that investing in a tax-efficient manner is also very important, with government incentives on financial products such as long-term bonds and insurance contracts, as well as structured products with capital protection, proving popular.

Wealth preservation

The majority of wealthy Koreans are intent on wealth preservation rather than investing for growth, according to Edward-Kwonseok Son, senior manager at KEB Hana Bank. “Considering the average age of our private banking clients is approximately 65 year-old, it makes sense,” he says. 

Yet he explains how low interest rates in South Korea – currently at a record low of 1.25% – combined with the long-running bull market in equities, are having an affect on clients’ risk profiles.

“We have seen a significant increase of interest in equity-linked products, since such products offer higher returns than bank deposits, yet offer greater risk diversification than investing directly in single-name equities,” he says. Mr Son highlights equity-linked trusts, which are linked to indices but also have relatively low barriers for early redemption and are seen as less volatile than products linked to individual stocks.

This change in investor appetite is also reflected by signs of growing demand for overseas investments, although with just 26% of respondents to the Korea Wealth Report 2015, published by KEB Hana Bank and the Hana Institute of Finance, holding foreign assets, domestic investments are still very much in the majority. The US and Canada are the destination of choice for those willing to invest abroad, according to the report, with investors viewing these countries as less risky than Asian and emerging markets.

If clients continue to expand their investment horizons, this could become a key differentiator between wealth managers, according to Shinhan’s Mr Do. “As interest rates remain at record lows, our clients’ needs will grow and competition among banking institutions that offer wealth management will become fiercer,” he says.

Slow on fintech

While South Korea is one of the world's most advanced tech markets, its financial services sector has been relatively slow in its adoption of technology. Much of this is due to the prevalence of the traditional relationship-based business model, which places great importance on face-to-face meetings. However, with customers increasingly receptive to technology and with digital tools offering banks more access to customer data, there are signs that this is beginning to change, though it is early days.

“The Korean market is highly regulated, which makes it difficult to conduct retail investment business over the internet,” says Aite’s Mr Pirker, though he points out that the government has indicated it will try to deregulate in order to give fintech a boost.

Leading firms such as KEB Hana Bank and Shinhan are keen to innovate, claims Mr Pirker, with robo-advice platforms in various stages of development, but the uptake among consumers has been not very strong to date, he says.

“I don’t expect robo-advisers to replace the existing traditional face-to-face-driven wealth managers,” says Mr Park at Oliver Wyman. “Rather, they will help private bankers interact with customers by offering a consistent house view rather than being heavily reliant on the individual skills of their employees. This could restore trust and confidence in their wealth managers, while allowing for a more customised portfolio based on different customer needs.”

Robo-advisers could also help wealth managers broaden their customer base into the mass-affluent market and increase their revenue base, he explains, a group that has not previously been targeted for cost reasons. “How quickly and efficiently these firms are able to adopt digital technology could well change their competitive positions over the next three to five years,” says Mr Park.

He also believes the way firms pay their relationship managers and private bankers needs to be revamped. “The current sales-driven compensation model leads to a lot of asset churning, which can lead to customer dissatisfaction and mis-selling.”  

Some local players have begun to add customer satisfaction and investment returns to their key performance indicators, but as long as the majority of staff incentives come from how much revenue an individual generates through sales, the potential for mistrust is there, adds Mr Park.


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