Financial Supervisory Service Troubled by Overheated Competition Between Mirae and Samsung ETFs

Total Expense Ratio 0.0099% VS 0.0098%
Monthly Dividend ETF Marketing Report Required
Short-term Benefit for Financial Consumers
Long-term Concerns Over Threat to ETF Ecosystem
FSS Verbally Requests Restraint

The competition in marketing Exchange-Traded Funds (ETFs) has intensified, causing the Financial Supervisory Service (FSS) to be concerned. While fee reductions are beneficial to individual investors in the short term, there is a judgment that it could undermine the vitality of the asset management industry in the long run.

According to the financial investment industry on the 30th, the FSS recently expressed concerns to Samsung Asset Management (Samsung AM) and Mirae Asset Global Investments (Mirae Asset GI) about the overheated competition in ETFs.

The market share competition between Samsung AM and Mirae Asset GI in the ETF market is well known. Samsung AM introduced the first domestic ETF, 'KODEX 200,' in 2002. Since then, it has maintained the number one market share in the domestic ETF market for over 20 years. The gap in market share has narrowed as the latecomer Mirae Asset GI has successfully launched a series of thematic ETFs.

According to data from the Korea Financial Investment Association, as of last month, Samsung AM's total net asset value of ETFs was 55.41 trillion KRW, accounting for about 39.23% of the market share. Mirae Asset GI's total net asset value was 51.6082 trillion KRW, close behind at 36.54%. Both sides have 185 listed ETF products.

In the early stages of the ETF market, competition among asset managers focused on product development. However, most index and thematic products that could be developed have already been introduced. As a result, fee competition among asset managers is intensifying. Samsung AM was the first to open fire.

Samsung AM previously slashed the management fees of four ETFs?'KODEX US S&P500TR,' 'KODEX US Nasdaq100TR,' 'KODEX US S&P500(H),' and 'KODEX US Nasdaq100(H)'?from an annual 0.05% to 0.0099%. For an investment of 100 million KRW, the total fee drops from 500,000 KRW per year to 9,900 KRW, effectively meaning no fees are charged.

In response, Mirae Asset GI reduced the total fee of the 'TIGER 1-Year Bank Negotiable Certificate of Deposit Active (Synthetic) ETF' from 0.05% to 0.0098%. This ETF tracks the interest rate of 1-year negotiable certificates of deposit (CDs). It is a competing product to Samsung AM's 'KODEX CD Rate Active ETF,' which was the industry's first when launched last year. Mirae Asset GI took the title of 'lowest fee in domestic ETFs' by lowering the total fee by 0.0001 percentage points compared to Samsung AM.

The fee competition has become so heated that complaints about competitors' marketing have been filed with the FSS. A financial investment industry official explained, "As monthly dividend ETFs gained attention and marketing became aggressive, a complaint was filed with the FSS claiming that the phrase 'ETF that pays a salary' was false advertising," adding, "The FSS judges that the competition level between the first and second largest ETF providers is excessive."

However, the FSS has no grounds to regulate the overheated competition. Fee reductions are decisions made by competitors based on market logic and are advantageous to individual investors. Instead, dissatisfaction is growing within the asset management industry. Other asset managers cannot avoid joining the fee reductions to prevent losing existing customers. While healthy competition broadens financial consumers' choices, there are concerns that overheated competition could shrink the ETF market.