South Korea's Financial Supervisory Service (FSS) has issued investor warnings as misleading ETF advertisements proliferate amid intense marketing competition in the country's 300 trillion won ($220 billion) exchange-traded fund market.
The regulator said it identified advertisements and social media content from asset managers that "could neglect investor protection or cause misunderstanding due to overheated marketing competition."
The FSS urged investors to carefully examine the possibility of principal loss, foreign exchange risks, and the calculation periods for advertised returns.
According to the FSS review, some asset managers compared ETFs to bank deposits or specified exact amounts to suggest guaranteed fixed income. One company promoted a maturity-matched bond ETF as "safe as a deposit but with higher returns." Another used provocative phrases such as "invest 100 million won and receive 1.5 million won monthly" for a product with a 10% target distribution rate.
However, the FSS noted that ETFs are not covered by the Depositor Protection Act, unlike bank deposits. Principal losses can occur when underlying stock or bond prices decline.
The regulator also flagged advertisements that highlighted product features as advantages when they could become disadvantages depending on market conditions. One manager promoting a currency-unhedged overseas equity ETF stated "dollar exposure is an advantage!" as if it were beneficial regardless of exchange rate trends.
"For currency-unhedged products, even if stock prices rise, a falling exchange rate can reduce overall returns or cause principal losses due to currency losses," the FSS explained.
Some companies excessively emphasized returns from specific periods. One manager advertising a covered-call ETF claimed "daily option premiums were several times higher than monthly options." However, this was based only on a period when market volatility temporarily boosted returns.
"Excessively highlighting temporary performance due to short-term factors could induce investment without sufficient consideration of long-term performance or volatility," the FSS warned.
Advertisements using terms like "first" or "lowest" to attract investors despite no meaningful differentiation from existing products also drew scrutiny. One manager advertised a thematic ETF tracking a specific industry index as "Korea's only representative ETF for the XX industry," when a similar ETF from another company was already listed. Another promoted "Korea's lowest fees," but total costs including miscellaneous expenses exceeded competitors.
An FSS official said the agency would "monitor for inappropriate cases to prevent ETF advertisements from confusing investors and work to foster a sound ETF investment culture."