Individual Retirement Pensions Face High Risk of Incomplete Sales... "78% Lack Explanation of Disadvantages"

[Asia Economy Reporter Oh Ju-yeon] While emphasizing the benefits of enrolling in Individual Retirement Pensions (IRP), it was found that the disadvantages such as penalties for early termination are not properly explained. Additionally, 7 to 8 out of 10 cases proceeded without any explanation of after-sales management services.

On the 6th, the Korea Financial Investment Consumer Protection Foundation announced the results of the "2019 Individual Retirement Pension (IRP) Sales Evaluation," targeting 15 banks and securities companies with IRP reserves exceeding 100 billion KRW as of the end of 2018.

IRP is a retirement pension product that allows workers to accumulate retirement benefits received upon retirement or voluntarily save retirement funds. The accumulated funds can be managed through various products such as deposits and funds. Since the scope of eligible subscribers expanded in 2017 and the tax deduction limit increased for voluntary contributions, IRP has become a major retirement preparation product.

The Korea Financial Investment Consumer Protection Foundation evaluated comprehensively based on subscription consultation (65%), characteristics of IRP accounts and managed assets (30%), and after-sales management services (5%). NH Investment & Securities (1st place), Korea Investment & Securities (2nd place), and KB Kookmin Bank (3rd place) were noted for thoroughly explaining IRP and managed assets (funds) during subscription consultations without procedural omissions, showing consideration for investors and achieving high overall rankings.

NH Investment & Securities was evaluated as having excellent returns on principal-guaranteed products, offering a diverse range of managed assets, and outstanding guidance on after-sales management services. Korea Investment & Securities showed excellent returns on performance-linked products.

On the other hand, Woori Bank, Mirae Asset Daewoo, and Hi Investment & Securities received lower scores.

Woori Bank (15th place) was evaluated as having insufficient IRP subscription consultations, poor returns, a narrow selection of managed asset products, and inadequate after-sales management service guidance. Mirae Asset Daewoo (14th place) provided a diverse range of managed assets with excellent returns but was penalized for insufficient IRP subscription consultation and high costs. Hi Investment & Securities (13th place) showed low dependence on affiliates and excellent after-sales management service guidance but had insufficient IRP subscription consultation and a narrow selection of managed assets.

Looking at the results by evaluation category, the risk of incomplete sales during IRP subscription consultations was significant, with banks being particularly vulnerable.

The average score for IRP subscription consultations was 33.8 points out of 100, which was significantly inadequate. By industry, banks (30.1 points) scored lower than securities companies (40.8 points), highlighting the urgent need for banks, which hold overwhelmingly large IRP reserves, to improve their efforts.

Furthermore, while tax benefits (such as tax deductions) at the time of IRP contributions and pension receipt were explained (68.6%), there was a high tendency (77.9%) not to explain the disadvantages of early termination. The Financial Investment Consumer Protection Foundation pointed out that early termination could cause financial consumer damage.

Moreover, the professionalism of sales staff was low, and in many cases, they did not verify the investor’s understanding. When asked about derivative-linked products (DLF), which became an issue due to incomplete sales in the second half of last year, about half of the sales staff either failed to explain or gave incorrect explanations (43.4%). During consultations, about half (51.2%) did not check whether the customer understood.

There was also criticism regarding the lack of after-sales management services. Since IRP is a long-term product with a subscription period of over five years, the need to guide after-sales management services is greater than for other products.

However, only two financial companies evaluated, KB Kookmin Bank and NH Investment & Securities, used IRP-specific after-sales management service guides. Other sales companies only provided after-sales management service guidance for 'funds,' which are products included in IRP.

Since IRP is a product that allows subscription to various financial products within the account like a basket, it has been pointed out that financial companies need to develop and provide after-sales management services from the perspective of the IRP portfolio.

The Korea Financial Investment Consumer Protection Foundation has posted the evaluation results on its website for financial consumers to refer to when subscribing to IRP.