Banks in South Korea will have to tell customers who invest in exchange-traded funds through trust accounts how much more they pay in fees than they would by buying the same funds directly from a brokerage. The rules require banks to spell out not only the advantages of trust accounts, such as advisory services and follow-up management, but also the added costs and trading restrictions.
The Financial Supervisory Service recently distributed its final 2026 plan to improve rules on non-deposit products at banks, according to reporting by The Seoul Economic Daily on the 15th. The plan requires banks to compare fee differences and the relative merits of bank trust accounts and direct brokerage trading in their ETF asset descriptions. In August, the FSS began inspections of major banks over signs that their ETF trust fee structures were working against customers.
Under a bank trust arrangement, the bank buys and sells ETFs with money entrusted by the customer. Clients can receive asset allocation advice from bank staff and continued services such as return management after investing, but trust-account fees are charged on top of the ETF's own costs. As a result, the fees run more than twice those of buying directly through a brokerage. Banks will also have to inform customers that real-time trading and setting a desired purchase price are not possible.
Banks must also explain which fee structure is more favorable depending on the investment horizon. They are required to compare front-end fees, paid at the time of subscription, with back-end fees calculated according to how long the investment is held, and to state in the description the point at which back-end costs exceed front-end costs. If the front-end fee is 1% of the invested amount and the back-end fee is 1% a year, for example, banks must explain that the back-end structure is more favorable for holdings of less than a year and the front-end structure for holdings beyond a year.
Post-investment disclosure will also be strengthened. Products rated at risk levels 1 and 2 must be covered by regular notices at least once a month, with broader information including ETF costs and early redemption fees. When price swings widen, banks must provide frequent updates on valuations, returns and expected redemption amounts along with market conditions, based on each bank's own standards.
Industry officials worry that the cost comparisons could weigh on banks' sales of ETF trust-account products, since customers may react more strongly to fee differences than to the benefits of advice and follow-up management. One industry official said that bank trust fees also cover external factors such as customer management, and that comparing them directly with brokerages amounts to telling banks not to sell the products at all.