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Disclosing Information: Financial Planners Balance Financial Institutions & Clients

Daehong Kwon, CFP, KoreaBy Daehong Kwon, CFP

Recently, disclosure designed to protect investors and financial consumers has been emerging as an important issue in the Korean financial community. In a narrow sense, disclosure involves signing forms and marking investment types. In a broad sense, it deals with ex-ante legal acts purported to protect investors and clarify accountabilities.

In the past, those acts were just considered a formality. As product descriptions and contract clauses were very complicated and difficult to comprehend, both sellers and buyers did nothing more than skimp through them. Contracts were entered into on the basis of personal relationships or emotional inclinations, rather than professional judgments. As such, nobody was reading the fine print in the contracts, nor did the sellers bring disadvantageous things to the buyers’ attention. Everything was handled in a laid-back manner, as if planners didn’t want to say complicated things and clients didn’t want to hear them. Then, when those looked-over details became an issue or a problem later, disputes easily erupted with each side blaming the other.

Contract Behavior is Evolving in Korea

This tendency has been a shortfall in the Korean contract culture, which lacks the custom of completing a detailed contract and handling important contents verbally.

However, with foreign financial institutions entering the Korean markets and the financial industry developing, the drawbacks are being dealt with. Clients are becoming wiser while civic groups to protect financial consumers have started to spring up here-and-there. To the extent that disputes between financial institutions and consumers have grown more serious, systems and regulations designed to prevent them have become stricter.

Now, more time and emphasis is being allocated to disclosure to avoid future disputes. Even though it may feel uncomfortable at first, making everything clear verbally rather than in writing is, in general, more desirable in preventing a dispute in the future. On another note, the development of devices such as smartphones and tablet PCs make it possible to record conversations in full and this could affect the conduct of the disclosure conversation.

Financial Planners are the Objective Third Party

Considering that financial companies would most likely have the upper hand in a dispute, financial planners need to be an objective third party who balance the other two parties in a contractual relationship. While financial planners ought to do the underwriting of the contract on behalf of the company, in order to prevent a reversal choice from clients, they should also make sure to explain complicated and difficult information to clients so they have a complete understanding. This disclosure process helps clients avoid unnecessary risks and losses and is also one of the reasons why financial planning can’t be done without human beings.

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