Integrated management account (IMA) products have sold out immediately after launch, notching early success. They offer yields in the 4 percent range, higher than time deposits at commercial banks that remain in the high-2 percent to low-3 percent range, while using a structure that effectively guarantees principal. That is seen as quickly drawing in conservative investors. The market is watching whether it could become a catalyst for money moves out of banks.

According to the investment banking industry on Dec. 31, Korea Investment & Securities' "Korea Investment IMA No. 1", launched on Dec. 18, filled its 1 trillion won subscription limit in 4 days and sales ended. Funds rushed in, with 220 billion won pouring in on the first day alone.

The product is a closed-end structure with a 2-year maturity and a target yield of about 4.8 percent a year. The top rates on 1-year time deposits at the five major commercial banks - KB Kookmin, Shinhan, Hana, Woori and NH NongHyup - are about 2.80 to 3.10 percent a year. That implies expected returns at least 1 percentage point higher than bank deposits.

Mirae Asset Securities' "Mirae Asset IMA No. 1", which began sales on Dec. 22, also drew steady investor interest and sold out its prepared 95 billion won allotment. The product is designed to pay a base return of 4 percent a year and distribute excess gains based on performance. It was assessed as meeting the needs of conservative investors seeking both stability and returns.

An IMA is a performance-linked dividend product offered by brokerages that effectively guarantees principal while providing returns above market interest rates. Only comprehensive financial investment business operators with at least 8 trillion won in capital can handle it. It guarantees repayment of principal with the brokerage's own capital. It has been recognised as highly stable even though it is not covered by the Depositor Protection Act.

In the financial sector, some see the IMA boom as going beyond a product's popularity and potentially serving as a signal that leadership in financial markets could shift from banks to brokerages.

What makes it more awkward for banks is "retirement pension departures". A "retirement pension in-kind transfer" system introduced at the end of October last year allows customers to switch financial companies without cancelling existing products, and fund flows from banks to brokerages have been surging.

According to financial authorities, since the system took effect, banks have seen net outflows ranging from several hundred billion won to the trillions of won, while the securities sector has recorded large net inflows. An estimate also showed that retirement pension funds flowing into brokerages alone reached about 2.5 trillion won as of the first half of this year.

The core driver of this "money move" is clearly "returns". Ministry of Employment and Labor figures showed brokerages' average retirement pension return was 6.33 percent a year, about 2 percentage points higher than banks' 4.2 percent. Brokerages also posted a 15.96 percent return for defined contribution (DC) plans as of the most recent third quarter, ahead of banks' 14.54 percent. Demand has surged to move pension accounts to brokerages that offer a diverse lineup of investment products such as exchange-traded funds (ETFs).

Brokerages have in fact grown to a scale that threatens banks. Korea Investment & Securities posted cumulative operating profit of 1.74 trillion won and net profit of 1.43 trillion won through the third quarter. It became the first in the securities industry to nearly catch up with, or in some indicators surpass, NH NongHyup Bank's net profit of 1.61 trillion won.

This is cited as an example showing brokerages can move beyond a brokerage-commission-centred profit structure and compete on equal footing with banks through a diversified portfolio that includes investment banking and asset management.

Banks, for their part, are focusing on IMA weaknesses such as taxes and liquidity as they go all-out to defend deposits. Most IMAs are closed-end structures with maturities of 2 to 3 years or longer, making early termination difficult or impossible. Banks, by contrast, are highlighting that their parking accounts offer interest rates of about 3 to 4 percent a year while allowing deposits and withdrawals at any time.

Taxes are also a variable. IMA earnings are paid out in a lump sum at maturity. If annual financial income exceeds 20 million won, it can become subject to comprehensive taxation on financial income, with tax rates as high as 49.5 percent. Bank private bankers also stress that "hidden costs" such as higher health insurance premiums can arise.

Banks are also expanding their lineup of equity-linked deposits (ELDs), which guarantee principal while allowing investors to expect additional returns if stock indexes rise. For corporate clients, they are emphasising the convenience of payroll transfers and payment systems, in a strategy to strengthen a lock-in effect.

An official in the securities industry said a virtuous cycle is being created by using liquidity secured through IMAs and long-term funds flowing in through retirement pensions to expand investment in the investment banking division. The official also forecast brokerages will establish themselves as a force in wealth management, competing on equal terms with banks beyond simple intermediation.