CONTENTS
- 1. Financial Investment Advisory | Definition
- - The Difference Between Discretionary Investment and Advisory
- - The Distinction Between Ordinary Investors and Professional Investors
- 2. Financial Investment Advisory | Points to Note When Entering Into a Contract
- - Confirming the Scope and Method of Advice
- - The Advisory Firm's Standards and Procedures
- - The Advisor's Experience and Qualifications
- - Stating the Investor's Responsibility
- - Fee and Compensation Structure
- - Contract Term, Modification, and Termination Conditions
- - Consistency Between the Contract Documents and the Written Materials
- 3. Financial Investment Advisory | How to Respond When a Dispute Arises
- - Mediation Through the Financial Supervisory Service
- - Settlement Through the Korea Consumer Agency
- - Settlement Through the Korea Exchange and the Korea Financial Investment Association
- 4. Financial Investment Advisory | The Importance of Response
1. Financial Investment Advisory | Definition
Financial investment advisory is a service that provides the advice needed for investment decisions when investors invest in financial products such as stocks, bonds, and funds.
A financial investment advisory firm provides individual advice to clients on matters such as the timing of buying or selling particular financial products and the composition of a portfolio.
In this context, unexpected disputes may arise in connection with financial investments, which are subject to various legal regulations.
The Difference Between Discretionary Investment and Advisory
One concept often confused with financial investment advisory is discretionary investment.
Advisory has a structure in which the investor makes the final decision, while discretionary investment has a structure in which asset management is entrusted entirely to another party, so a clear understanding is needed when entering into a contract.
The Distinction Between Ordinary Investors and Professional Investors
The Financial Investment Services and Capital Markets Act divides investors into ordinary investors and professional investors based on factors such as the investor's character and investment experience.
A professional investor refers to a person or institution that has abundant knowledge or experience related to financial products and possesses assets above a certain level or the ability to bear risk.
Conversely, any investor who does not meet these requirements is classified as an ordinary investor, to whom protective measures are applied more extensively.
Because this distinction serves as the standard that determines how detailed and careful an advisory firm or financial company must be in explaining matters to an investor, it is important to accurately understand the differences according to investor type.
2. Financial Investment Advisory | Points to Note When Entering Into a Contract
A financial investment advisory contract has a significant effect on an investor's decision-making, and if a loss occurs, it can lead to a legal dispute.
Therefore, before entering into a contract, you should carefully review the following matters.
This content is based on Article 97 of the Financial Investment Services and Capital Markets Act.
Confirming the Scope and Method of Advice
The first thing to confirm in an advisory contract is which financial products the advice applies to, and in what manner the advice will be provided.
Without a clear understanding of these points, a gap may later arise between the service the investor expected and the service actually provided.
The Advisory Firm's Standards and Procedures
The advisory firm should explain in advance the internal standards and procedures by which it recommends financial products or provides advice.
These procedures are an important basis for assessing whether the advice rests on objective and consistent principles.
The Advisor's Experience and Qualifications
As important as the name of the advisory firm is the experience and expertise of the officers and employees who actually provide the advice.
Under the law, the advisory firm has a duty to provide in writing the names and principal careers of its officers and employees, and the investor should review this information carefully.
Stating the Investor's Responsibility
An investment advisory contract should make clear that responsibility for the results of the advice rests with the investor and not with the advisory firm.
Even if the investor follows the advisory firm's advice exactly, losses may still occur, and the advisory firm does not guarantee returns.
Fee and Compensation Structure
Fees are one of the core elements of an investment advisory contract.
The investor should clearly confirm how fees and other costs are charged, along with the basis and frequency, and review whether these match the terms set out in the contract.
Contract Term, Modification, and Termination Conditions
The term of the advisory contract, whether early termination is possible, and the procedures for changing the scope of advice are also elements that the investor should confirm.
Because penalties or conditions may apply to termination or modification of the contract, it is important to understand the contract provisions in advance.
Consistency Between the Contract Documents and the Written Materials
The documents the advisory firm delivers at the time of contracting must be identical to the written materials provided in advance, which is also clearly set out in the Financial Consumer Protection Act.
If the prior information differs from the contract, the advisory firm may bear legal responsibility.
In addition, the contract documents must state the following items.
• Contract term and contract date
• Matters concerning modification and termination of the contract
• The name and business office of the investment trader, investment broker, or other financial institution with which the discretionary investment assets are deposited
3. Financial Investment Advisory | How to Respond When a Dispute Arises
During the financial investment advisory process, disputes may arise when an investor's rights are infringed or when the service is provided differently from the terms of the contract.
When facing such a situation, it is important to respond through appropriate procedures and methods.
Mediation Through the Financial Supervisory Service
When a dispute related to financial investment advisory arises, an investor may apply for dispute mediation to the Financial Dispute Settlement Committee of the Financial Supervisory Service.
The dispute mediation procedure proceeds as follows.
▶ Financial Supervisory Service Mediation Procedure
A complaint is submitted to the Financial Grievance Center by various means, such as the internet, mail, or in person, and the applicant must specifically state their personal information and the details of the dispute.
② Notice of Receipt and Investigation
When the complaint is received, notice of completion of receipt and of the assigned officer is given by text message, and the Financial Supervisory Service requests the submission of materials and attendance from the relevant institutions to conduct an investigation.
③ Recommendation of Settlement and Referral to the Committee
The Governor of the Financial Supervisory Service recommends a settlement to the parties to the dispute, and if a settlement is not reached within 30 days, the case is referred to the Financial Dispute Settlement Committee.
④ Review by the Committee and Presentation of a Mediation Proposal
The committee prepares a mediation proposal within 60 days, presents it to the parties, and recommends acceptance.
⑤ Acceptance of the Mediation Proposal and Taking Effect
When the parties accept the mediation proposal, it has the same effect as a judicial settlement, and a mediation protocol is prepared.
※ If the applicant and the relevant parties do not accept the above mediation proposal within 20 days from the date they are presented with it, they are deemed not to have accepted the mediation proposal.
Settlement Through the Korea Consumer Agency
The Korea Consumer Agency operates the Consumer Dispute Settlement Commission to resolve disputes between consumers and businesses.
When harm related to financial investment advice occurs, a consumer may apply for dispute settlement through the following procedure.
▶ Korea Consumer Agency Settlement Procedure
A complaint may be filed with the Consumer Counseling Center by various methods, including telephone, internet, mail, FAX, or in person.
② Recommendation of Settlement
The Korea Consumer Agency may propose and recommend a settlement to the parties to resolve the issue.
③ Referral to the Consumer Dispute Settlement Commission
If no settlement is reached within 30 days, the dispute is referred to the Consumer Dispute Settlement Commission, and certain cases (medical, insurance, agriculture and fisheries, and others) may be extended by up to 60 days.
④ Settlement Period and Notice of Result
The Commission must complete the settlement within 30 days, and if the period is extended, it notifies the parties of the reason and the deadline.
The settlement result is notified to the parties, who must reply within 15 days as to whether they accept it.
If no reply is given, it is deemed automatically accepted.
⑤ Effect of the Settlement
Once the settlement is accepted, it has the same legal effect as a judicial settlement.
Settlement Through the Korea Exchange and the Korea Financial Investment Association
The Korea Exchange carries out voluntary settlement work for disputes related to trading within the exchange market, and, together with the Korea Financial Investment Association, supports the resolution of disputes between investors and members.
▶ Korea Exchange and Korea Financial Investment Association Settlement Procedure
An investor or member may apply for settlement to the Exchange or the Korea Financial Investment Association when a trading-related dispute arises, and must submit the grounds for settlement and supporting materials when applying.
② Fact-Finding
The Dispute Settlement Commission may, where necessary, investigate the facts by requesting the attendance of the parties and related persons, requiring the submission of materials, and conducting on-site investigations, and the parties may not refuse without a justifiable reason.
③ Recommendation of Settlement and Closure of the Case
If the chairperson determines that a settlement is possible, he or she may recommend a settlement to the parties or close the case directly.
④ Referral to the Commission and Settlement Decision
If no settlement is reached, the case is referred to the Commission within 30 days of receipt of the application, and the Commission issues a settlement decision within 30 days and notifies the parties.
④ Legal Effect of the Settlement Proposal
If the parties accept the settlement proposal, it has the same legal effect as a settlement contract under the Civil Act.
4. Financial Investment Advisory | The Importance of Response
Financial investment advisory helps investors and advisory firms respond effectively to legal risks within a rapidly changing financial market environment and a complex regulatory system.
Because financial markets carry sharp volatility and a range of legal and regulatory requirements, various legal issues may arise during the advisory process, such as disputes over contract interpretation, possible violations of the Financial Investment Services and Capital Markets Act, and infringement of investor rights.
To prevent the resulting harm and legal sanctions and to respond promptly, professional legal support is necessary.
This firm provides systematic and strategic financial investment advisory services in collaboration with experts in each field, including finance attorneys, accountants, and tax accountants who have extensive experience and expertise across the financial investment area.
Drawing in particular on the practical experience of experts from asset management companies, financial institutions, and public agencies, we assist with tailored legal advice and dispute resolution for our clients.
If you need legal consultation related to financial investment advisory, we recommend that you obtain professional support from Daeryun's 🔗finance attorneys.
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