Elderly Investors in South Korea Overpay on ETF Trusts Due to Poor Guidance

Elderly investors in South Korea are incurring substantially higher fees, reportedly up to 7.2 times more than necessary, on their Exchange Traded Fund (ETF) trust investments. This financial burden stems from inadequate guidance provided by banks, leading investors to select disadvantageous fee structures.

Data from six major banks reveals that ETF sales between January 2022 and May 2023 totaled 64 trillion won, involving over 1 million transactions. Sales in May 2023 alone reached 10.8 trillion won, a ninefold increase compared to December 2022's 1.2 trillion won. The average age of these investors is 59.

A significant issue identified is that the majority of these investments (94.6%) are short-term, with investors selling within six months. Despite this, many opt for upfront commission fees, which are disadvantageous for short-term trading, instead of deferred fees. Deferred fees are calculated daily and paid upon withdrawal, making them more cost-effective for shorter holding periods. Furthermore, excessively low target return rates (below 3%) are often set, encouraging frequent trading and accumulating unnecessary fees.