South Korea’s brokerage houses annually spend more than 100 billion won ($92 million) on wining and dining their clients, Financial Supervisory Service data showed on Tuesday.

In a single business day, about 400 million won worth of meals and entertainment expenses are signed off for entertaining clients including powerful fund managers.
The generous expenses that are not directly related to the value of companies tracked by brokerages is raising questions about whether fund managers running the country’s pension and other key funds are making objective investment decisions free from lobbying and influence-peddling.

The combined net profit of 27 Korean securities houses went down 6.8 percent on-year to 2.3 trillion won in the fiscal year ended in March. In contrast, entertainment expenses jumped 18.2 percent to 117 billion won during the cited period.

Korea Investment & Securities spent 11.7 billion won for entertainment expense, up 19.6 percent from a year earlier. Mirae Asset Securities similarly saw the expenditure jump 20 percent to 8.4 billion won.

Daewoo Securities bucked the trend, reducing entertainment expense by 4.8 percent to 7.3 billion won.

Brokerage houses, however, tend to spend more on such expenses to secure deals and increase revenue, as their profit comes from commissions on large-scale transactions and sales personnel have a bigger say in the process of opening up new channels.

Winning a major deal from a high-profile client, is therefore a surefire way to boost revenues and profits, and brokerages are sparing no expense to impress their potential clients to grab a contract, thereby resulting in higher spending on hospitality.

The Korean brokerage houses’ combined advertising budget rose 7 percent on-year to 297 billion won in the most recent fiscal year.

But the companies did little to raise their budgets for their core business: research. In their regular business reports, only 16 firms revealed their research budgets, which averaged a mere 960 million won, far less than their average entertainment spending of 4.1 billion won and advertising budget of 11 billion won.

By Yang Sung-jin (insight@heraldcorp.com)