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2023 Oct/17
Examination of Mutual Fund Sales Charges and Relevant Implications
Issue Papers 23-19
PDF
- Research Topic Asset Management/Pension
- Page 23
- Summary
- The current structure of mutual fund sales charges in Korea is more of a historical coincidence resulting from regulatory gaps in the process of separating fund management from sales activities in the mutual fund industry in the 1990s, rather than a result of comprehensive social consensus. Korea’s mutual fund sales market exhibits distinct characteristics, including indirect receipt of distribution fees from a fund’s assets, a higher share of distribution fees compared to sales commissions, and elevated distribution fees surpassing management fees. These features give rise to several unintended consequences such as conflicts of interest between customers and fund distributors, upward leveling of distribution fees, and a lack of competitiveness in low-cost fund products. Furthermore, the limited competition among fund distributors and a mismatch between services and costs hinder the growth of the mutual fund industry in Korea.
To address these market challenges, this article proposes potential solutions as follows. First, fund distributors should receive sales charges directly from customers, rather than from the fund’s assets, a policy successfully implemented in countries such as the UK, the Netherlands, and Australia. This approach has proven effective in mitigating conflicts of interest between customers and fund distributors and can foster market competition while reducing investment costs. Second, it is necessary to align sales services with costs through cost unbundling. Establishing a match between the nature of services and associated costs can mitigate relative disadvantages faced by DIY investors, long-term investors, and large investors, potentially expending investor base. However, it should be noted that some policy measures can bring about significant changes; therefore, they should be initially applied to online sales channels to minimize potential side effects.