[Opinion] Incomplete Fund Sale

A man was invited to invest in an equity-type regular savings account by a bank branch manager four years ago. The man put into the account 500,000 won every month. When the fund’s three-year period matured in October last year, the domestic KOSPI was around 2,200. Thus the principal of 25 million won (18,389 U.S. dollars) snowballed to 43 million won (31,629 dollars). Excited by this, the investor elected to keep his money in the account, and even subscribed to a new fund with a five-year maturity.

The first fund whose principal once rose to 43 million won is now worth half of its principal. The new fund is no better condition. As the KOSPI has declined since October last year, the investor’s dream of saving money for retirement has been dashed. Korean investors complain that the value of their funds has fallen by several hundreds of millions of won. Certain investors who borrowed money to invest in funds have suffered more. As most financial products have lost value, financial institutions now face civil lawsuits.

The Financial Supervisory Service said yesterday that Woori Bank should compensate half of losses suffered by a homemaker who subscribed to Woori Power Income Funds, a derivative product. As the name of the fund suggests, the money saved in the fund product was invested in risky investment destinations. The financial authority said the bank should fully explain to customers that a fund product is different from general savings in that its principal can decrease. It said the bank should bear responsibility since it let the homemaker misunderstand that the principal invested in the fund was guaranteed. In this regard, the bank’s sale can be categorized as an “incomplete sale,” referring to a transaction made without accurate information. Just who will have the last laugh remains unknown if the bank sues instead of following the financial watchdog’s advice.

A variety of derivative fund products have been released, but financial institutions have rarely provided simplified funds such as bond and equity types. Instead, they provide complicated funds such as MMF, separate taxation, equity income, growth and income, growth, asset allocation, derivative, matching and chameleon. Needless to say, banks should provide accurate and full explanations on all of these products. But customers should also sign contracts after thoroughly understanding what they are getting into. In a bullish stock market, a fund can generate more profit than a time deposit or bond, but no fund can guarantee the principal.

Editorial Writer Yuk Jeong-soo (sooya@donga.com)