This study finds ways to resolve conflict of interests between financial products recommendation service of sales channel and retail clients in Korea. To that end, this study conducts an empirical analysis on mutual fund recommendation and fee, an on-line survey on the experience of mis-selling, and an survey of foreign cases on legal system of financial advisory.

After the global financial crisis, there is an increasing concern on consumers' financial loss from mis-selling and the asymmetric information and the complexity of financial products. Therefore, major countries, such as the UK and Australia, have made efforts to mitigate structural conflict of interests by reorganizing the legal system and regulation on the financial advisory service.

In Korean financial products market, number of complaints and disputes on mis-selling are consistently growing. Therefore, appropriate policies to mitigate the mis-selling are urgently required. In major countries with organized financial regulation and law, personal recommendation of a specific financial product is recognized as 'financial advice'. On the contrary, personal recommendation is regarded as a sales process in Korea, as 'financial advice' is not established as a legal concept for retail clients. Even though the financial authorities are considering an implementation of conflicts-free independent financial advisor, the recommendation service from current sales channel is not included as 'financial advice'.

This study confirms that sales channels' inclination to recommend relatively higher-commission products through mutual funds data, as well as Korean consumers’ perception and actual experience of conflict of interest through an online survey. It also suggests measures to promote the independent financial advice and upgrade the financial advice service by introducing recent regulatory reforms and laws on financial advice service in major countries.

Chapter 3 demonstrates that financial institutions tend to select mutual funds with higher sales fee in the recommendation lists on their web-pages. Even with regression analysis controlling other factors, fund sales fee and commission have statistically significant impact on the recommendation.

Chapter 4 carries out an online survey targeting 1,600 consumers who have ever bought insurances for investment or mutual funds within last 5 years. The result shows a considerable number of respondents experienced that sellers provided an insufficient explanation about the probability of principal loss, or they induced unsuitable higher-risk products. A regression result also shows that consumers with lower financial literacy are more likely to experience these mis-selling.

Consequently, below policies are required to protect financial consumers and invigorate independent financial advisors. First, a legal definition of financial advice should be established. Second, a structure of sales commission provided by current sales channel should be disclosed to consumers in detail. Third, financial authorities, even if not forced measures like in the UK, should suggest a balanced KPI (key performance indicators) to mitigate conflict of interest of financial advisors. Also, it is necessary to strengthen online sales platform for the pressure of competition.

Preface
Executive Summary

Chapter 1 Introduction

Chapter 2 Compensation Structure of Financial Advisors and Potential Conflicts of Interest with Consumers
　Section 1 Consumer Protection in Retail Investment Product Advisory
　Section 2 Empirical Evidence of Conflicts of Interest in Financial Advisory and Institutional Improvement Measures

Chapter 3 Analysis of Fund Sales Recommendations and Conflicts of Interest: Fund Recommendation List Analysis
　Section 1 Research Objectives and Necessity
　Section 2 Literature Review
　Section 3 Overview of the Fund Market
　Section 4 Research Methodology and Data Characteristics
　Section 5 Comparison of Recommended and Non-recommended Funds: Difference Analysis
　Section 6 Impact of Sales Commissions on Fund Recommendation Decisions: Regression Analysis
　Section 7 Conclusion

Chapter 4 Consumer Experience and Evaluation of Conflicts of Interest in Financial Advisory Services: Survey Analysis
　Section 1 Research Objectives and Survey Methodology
　Section 2 Experience of Inadequate Explanations and Failure to Disclose Sales Commissions
　Section 3 Impact of Consumer Financial Literacy on Advisor Compliance: Regression Analysis
　Section 4 Consumer Perception of Conflicts of Interest in Financial Advisory
　Section 5 Consumer Demand for Advisory Services and Promotion of Independent Financial Advisors
　Section 6 Conclusion

Chapter 5 Regulatory Frameworks for Financial Advisory Services in Major Countries and Recommendations for Korea
　Section 1 Legal Basis for Financial Advisory Regulations in Major Countries
　Section 2 Recent Reforms in Financial Advisory Regulations in Major Countries
　Section 3 Current Regulations on Financial Advisory in Korea and Their Limitations
　Section 4 Policy Recommendations for Improving the Financial Advisory System in Korea

Chapter 6 Conclusion

References
Appendix 1: Types and Definitions of Retail Investment Products
Appendix 2: Robustness Checks for Fund Recommendation List Analysis
Appendix 3: Original Texts of Financial Advisory Laws in Major Countries
Appendix 4: Characteristics of Online Survey Participants
Appendix 5: Online Survey Questionnaire
ABSTRACT