The country has taken steps to create a market for independent wealth advice, including stamping out trail commissions for independent financial advisors.

South Korea wants to create a market for independent financial advice by creating a regime under which IFAs charge clients direct fees and do not get paid trail commissions, a move that follows reforms such as those enacted in the UK three years ago.

The measures have been rolled out by the Financial Services Commission as part of a plan, it says, to give consumers professional and independent advice, encourage affordable channels such as “robo-advisors”, and create cheaper and more convenient routes for advice.

As part of the changes, advisors that offer access to a restricted range of products, such as savings, funds and derivative-linked securities, will only need a minimum capital sum of KRW100 million (around $8.7 million), a fifth of the KRW500 million that is required for financial advisors under existing legislation, the Commission said.

Among other changes, banks can also offer advice in the newly-created category of "advisory services". However, banks will be banned from offering financial advice about equities, bonds and derivatives to prevent potential conflicts of interest.

Almost a decade after the 2008 financial crash, jurisdictions are still wrestling with how to avoid mis-selling of financial products and ensure that consumers receive objective, professional advice. In the UK, for example, a programme of reforms called the Retail Distribution Review that banned trail commissions became law in 2013. Singapore has acted to tighten controls on advisors.

Such reforms have been controversial. In the UK, for example, the ban on commissions and tighter rules on what is meant by “independent” advice prompted a number of wealth managers and banks to lift the minimum assets under management they require from clients, creating a so-called “advice gap”. The regulations have seen a number of IFAs merge, sell their businesses or join networks to ensure they remain competitive.

A state of independence
The Commission plans to create a new status of “independent financial advisor”. To be designated as such, advisors must be paid fees from clients and not from product providers. Also, they cannot provide financial products concurrently, but discretionary investment providers can give both advisory services and products. Non-IFA advisors are not banned from being paid commissions.

As far as robo-advisors are concerned, the Commission plans to change regulations in the first half of this year so that such business models can operate legally. At present, they are not allowed to give fully-automated services in certain phases. The regulator will hold a pilot test of fully automated robo-advice in July.