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Korean Trends are Creating Opportunities for Fee-Based Planners

Junesoo Chang, CFPBy Junesoo Chang, CFP 

Since the CERTIFIED FINANCIAL PLANNER mark was introduced 10 years ago in Korea, public awareness of financial planning has increased remarkably. Nowadays ‘financial planning’ is almost everyday language in mass media. I think the increased awareness is largely attributed to socio-demographic changes and economic phenomenon in this country.  Pioneering CFP certificants along with the public relations activities of the Korean Financial Planning Association have also played an important role. The CFP certification is the most preferred credential among financial planners whether they are independent workers or employed by financial institutions.

Changes in Family Structure

There have been monumental social and demographic changes in Korea for the last decade.  One of the main phenomena is that families have been decreasing in size rapidly. This is a result of people preparing to support themselves in their later years. Traditionally, the adult sons and daughters would support their parents in their later years. In the current family system though, people are now supporting themselves after retirement. Now, a large population of Korean baby boomers has begun to retire. They are the first generation who has to stand on their own two feet in their later years. Some of them are still ignorant of the seriousness of the task and some seek to get help from financial planners. An increasing number of Korean people preparing for their own retirement are resulting in an increased awareness of financial planning.

Korean Real Estate Market

Economic phenomenon also has an effect on the awareness of financial planning in Korea.  For the last few years, Korean people have seen the real estate bubble burst which they have never seen before. Except for intermittent downturn periods, Korean people have enjoyed increasing real estate prices for more than half a century. Making money was very simple. “Just buy good real estate and hold it.” Now more than 70% of Korean household assets are composed of real estate. With the real estate bubble bursting and negative long term prospects, people are beginning to worry about their asset portfolio being too heavily dependent on real estate. Many people realize that they need to diversify their asset portfolio.  Some of them are looking for competent financial planners who can help them, resulting in an increased demand for CFP professionals.

Moving Towards Fee-Only

Charging fees for financial planning is a brand new approach in Korea where the public is only familiar with financial advisors who sell products. An encouraging sign is that some financial planners, especially CFP certificants, have begun fee and commission businesses.  When clients pay fees for financial planning they understand the value of financial planning.  It also means that they know the difference between ‘true financial planning’ and ‘financial advice to sell.’ Fee-only financial planning is ideal but it seems to be premature in Korea as the private banking service in major financial institutions doesn’t charge fees for their clients. The financial institutions only make money by selling financial products. Another obstacle to getting started in the fee-only business is that there is not a no-load fund in Korea.

An Opportunity Rather than a Threat

Recent global economic downturn is causing hardships for many financial advisors as their income is decreasing significantly. Yet, demand for competent financial planners is increasing with the increased awareness of true financial planning. It may be an opportunity rather than a threat for financial planners, especially for CFP certificants, as long as they are competent and have a strong work ethic.

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