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Regulation Change and Financial Planning for the Poor

Korean Financial Planning Professional Sunho KimBy Sunho Kim, CFP

This year, Korean financial planners will be able to provide their clients with better financial planning services. At the end of last year, nine asset management companies developed twelve hedge funds, enabling hedge fund investments to be incorporated in the portfolios of individuals who were able to invest more than KRW 500 million. With a newly revised trusteeship act made effective this year, high net worth individuals can benefit from trusteeship services in accordance with their needs and objectives.

Some financial organizations are preparing to provide ultra-high net worth clients with a family office service. Should the law concerning financial consumers, whose legislation was put on notice last year, be passed this year, it would become a legal ground to provide financial planning services based on fees.

The Pending Law is Creating Controversy

The pending law requires anyone who wants to practice financial planning to be an employee with a corporation that meets a specific level of capital requirement. As such, it will exclude the individuals and Insurance General Agencies who have been engaged in the financial planning services for the past ten years in Korea. This is creating a controversy concerning the need for financial consumer protection and the spread of financial consumer benefits. And it reveals the supervisory authorities’ views are not recognizing civilian sectors as their market partner.

This is in contrast to the attempt being made by the U.K. to utilize the competence and creativity of civilian sectors in their effort to improve the financial planning environment. In order to solve problems in the retail financial market, the Financial Services Authority (FSA) of England published a report, A Review of Retail Distribution, in June 2007. The report purported to help make financial consumers’ access to investments easier, increase the criteria for advisers’ professionalism, and eliminate conflicts of interest arising from advisers’ fees.

The Adoption of Accredited Bodies

Since then, it has been collecting opinions from the professional communities to bring about reforms in the financial market, which are set to take effect in 2013. Most notable in the reforms is the adoption of accredited bodies. Accredited bodies, chosen from existing civilian associations that will meet FSA’s guidelines, are to supervise advisers and review their ethics and professionalism on a continual basis. The Institute of Financial Planning Ltd., the UK’s certifying body, is to provide its member-advisers with the Continuing Professional Development (CPD) programs and the Statement of Professional Standing (SPS).

What should be done in Korea, in order for us to improve financial planning services and ethics while cooperating with the authorities and civilian sectors as in the case of Britain, so that more people could receive the benefits of financial planning?

Communication with Supervisory Authorities

First and foremost, we would need to reinforce the communication channels with the supervisory authorities and cooperate with them for a better exchange. The attendances of annual financial planning conferences by the Minister of Strategy and Finance and the Chairman of Financial Services Commission are encouraging. In addition to this high-level channel, we need to strengthen the channel on the working level, as well. By providing content on ethics, processes, and financial education, we can make a contribution towards increasing the professionalism and ethics of the entire financial community, not just those of financial planners. Also, by providing regulators with information on financial planning environments and policies in other countries, it should help them find ways to adopt the most advanced financial planning systems for this country. For this purpose, a more active and rigorous exchange of information with global members in each country, will be necessary.

Second, we need to let the value and benefits of financial planning be known to general financial consumers, thereby laying out groundwork for them to influence government policies in an indirect way. For this purpose, financial planners should provide quality financial planning services that can be spread to the public by word-of-mouth. In addition to such financial planning services as the newly adopted hedge funds, trusteeships, and family offices, we also need to provide non-financial services — such as financial “life” planning — more actively.

However, there is a limitation in spreading the worth of financial planning through one-on-one counseling. Although the worth of financial planning is beyond the size of one’s assets and incomes, in reality, high net worth individuals who constitute one percent of the population have easier access to it. It is difficult for the remaining ninety-nine percent to enjoy the services despite their real need for them. We, therefore, should employ a different approach to the middle class and the people in poverty, in order to provide financial planning services to the ninety-nine percent.

Financial Planning Day

So, as for the middle-class people, we could provide financial planning services on an hourly-based fee, as Sheryl Garrett, an American CFP professional, does, or as supported by their companies in an employee welfare program. Free lectures and counseling could be provided as well. Korea Financial Planner Association (KFPA) is scheduled to have a tour of the nation in September to provide free lectures and counseling under a “Financial Planning Day” program. The success of this program does not just lie in the number of people who will attend. It depends more on the voluntary participation of the members.

Financial Planning for the Poor

In the case of the people in poverty, free counseling and education can play an important role. In 2011, a new clause was entered in the National Basic Livelihood Security Act — an act made to guarantee a basic livelihood for the destitute and assist them with their rehabilitation — that stipulates that education programs can be provided to people who are receiving welfare money under the act, for the purpose of helping them earn an income for rehabilitation. Those education programs can include debt management, asset management, credit management, as well as financial planning. This was the first time that financial planning had ever been specified in a law. Through this financial planning education aimed at helping them create a financial base, as well as in the course of the counseling, the financial planners will be able to share with the destitute a very valuable experience of nurturing hope.

Consumers are the Catalyst for Change

When financial planning counseling and education, based on fees or free of charge, are provided not only to the one-percent high net worth individuals but also to the ninety-nine percent middle class and poor, thereby helping the entire population learn to appreciate the value of financial planning and enjoy its benefits, the policies of the financial authorities will have no alternative but to transform themselves accordingly. To wit, the value and usefulness of financial planning as expressed by the financial consumers themselves will provide the strongest, albeit slow, catalyst for changes in government policies. In order to help such expressions made possible, each and every financial planner in this community ought to remember that he or she is the very representative of the entire financial planning community when he or she engages in financial planning services for clients.

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