Commission for South Korean Robo-Advisors to Be More Expensive than American Robo-Advisors

Apr 06, 2016

It is seen that Robo-Advisors that South Korean consulting companies put out have higher commission and higher membership cost than American Robo-Advisors because market is not formed as it is supposed to be and government’s regulations are in the way.

According to financial investment industry on the 5th, investment consulting companies such as Quarterback, December, Value System, Summit International Capital and others recently put out financial products that are based on Robo-Advisors one after the other. However they are receiving criticisms as they are far from low commission and low minimum membership cost that are seen as greatest advantages of Robo-Advisors.

Quarterback Investment Consulting Company is managing Quarterback Alpha and Beta that mostly target ETF (Exchange-Traded Fund) in South Korea. From this, Quarterback Alpha receives basic commission of 1.0% along with commission from successful investments while Quarterback Beta receives basic commission of 0.4% along with commission from successful investments. Commissions from successful investments are about 10 to 15% of profits from investments. Minimum membership cost is $8,605 (10 million KRW). December Company also receives basic commission of 0.4% along with extra 10% commission when profit exceeds regular profit ratio. Its minimum membership cost is $4,302 (5 million KRW).

It is seen that Robo-Advisors that South Korean consulting companies put out have higher commission and higher membership cost than American Robo-Advisors because market is not formed as it is supposed to be and government’s regulations are in the way. <It is seen that Robo-Advisors that South Korean consulting companies put out have higher commission and higher membership cost than American Robo-Advisors because market is not formed as it is supposed to be and government’s regulations are in the way.>

On the other hand, American Robo-Advisor company called Betterment receives only 0.35% of commission for investments that are under $10,000. Yearly commission is even lower at 0.15% when investments are worth more than $100,000. It does not have minimum membership cost and incentive compensation. Wealthfront also receives only 0.25% of commission yearly and its minimum membership cost is $500.

Compared to South Korea, commission is cheaper and it has lower minimum membership cost.

Industries chose beginning stage of formation of market and government’s regulations as reasons why commission is so high for South Korean Robo-Advisor products.

“Because South Korean Robo-Advisor market is still in early stage of formation, cost of developing robots and managing workers was applied and this has caused commission to be so expensive.” said Director Kim Jung-bum of Daewoo Securities Co., Ltd.’s Product Development Part. “However if it is compared to previous fund products, membership cost and commission are much lower.”

Fact that structure of sales is different is also another reason why commission is so expensive.

Wealthfront or Betterment do not use much resources in operation and distribution as they sell their products directly through online. However robots in South Korea are not allowed to operate fund on their own and cannot make online transactions. Consulting companies have no choice but to hire workers and use separate distribution network to manage their Robo-Advisor products. South Korean Governments do not allow robots to operate on their own and robots are not allowed to make online purchase and sales.

“Robo-Advisor is a type of equipment industry that implements sizeable economy.” said a representative for this industry. “Because cost will be reduced and amount of profit will increase as size of assets becomes bigger, this will ease non-face-to-face regulations and will cause competition for lower commission if size of operation becomes bigger as consulting companies gain more experience.”

Senior Reporter Lee, Kyungmin | kmlee@etnews.com

■Commissions of major South Korean and other countries’ Robo-Advisor companies
▲December &#8710;0.4%+10% of excess profit (mix-type) &#8710;$4,302 (5 million KRW) (minimum membership cost)
▲Value Investment Consulting Company &#8710;0% of outcome + 20% of excess profit (basic + outcome-type) &#8710;$8,605 (10 million KRW) (minimum membership cost)
▲Summit International Capital &#8710;1.0% (mix-type) + 7.0% of incentive compensation + 12% of excess profit &#8710;1.3% of basic commission &#8710;$8,605 (10 million KRW) (minimum membership cost)
▲Quarterback Investment Consulting Company &#8710;1%+7%+15% of excess profit (alpha) 0.4%+10% of excess profit (beta) (mix-type) &#8710;1.4% basic commission (alpha) & 1.0% basic commission (beta) &#8710;$8,605 (10 million KRW) (minimum membership cost)
▲Betterment &#8710;0.35% (under $10,000), 0.25% ($10,000~$100,000), 0.15% (more than $100,000) &#8710;no membership cost
▲Wealthfront &#8710;0.25% of yearly commission  &#8710;$500 (minimum membership cost)

<■Commissions of major South Korean and other countries’ Robo-Advisor companies ▲December ∆0.4%+10% of excess profit (mix-type) ∆$4,302 (5 million KRW) (minimum membership cost) ▲Value Investment Consulting Company ∆0% of outcome + 20% of excess profit (basic + outcome-type) ∆$8,605 (10 million KRW) (minimum membership cost) ▲Summit International Capital ∆1.0% (mix-type) + 7.0% of incentive compensation + 12% of excess profit ∆1.3% of basic commission ∆$8,605 (10 million KRW) (minimum membership cost) ▲Quarterback Investment Consulting Company ∆1%+7%+15% of excess profit (alpha) 0.4%+10% of excess profit (beta) (mix-type) ∆1.4% basic commission (alpha) & 1.0% basic commission (beta) ∆$8,605 (10 million KRW) (minimum membership cost) ▲Betterment ∆0.35% (under $10,000), 0.25% ($10,000~$100,000), 0.15% (more than $100,000) ∆no membership cost ▲Wealthfront ∆0.25% of yearly commission ∆$500 (minimum membership cost) >

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