The growing pains of foreign exchange financing

On the one hand, the China Banking Regulatory Bureau has frequently issued risk warnings and reminders for various wealth management products after learning of a large increase in complaints from financial consumers. On the other hand, banks are lining up to sell various foreign exchange wealth management products. In the early stage of the development of my country's foreign exchange financial management market, it encountered the contradiction between rapid growth and slow market recognition, which directly caused many disputes. This can also be described as "growing pains".

"Since 2005, financial consumers' complaints about personal wealth management products in the Shanghai market have been on the rise. Judging from the financial consumer complaint hotline and reporting letters of our bureau, complaints about wealth management products account for a relatively high proportion. According to the currency classification, there are mainly RMB wealth management products and foreign exchange wealth management products..." On April 6, the Shanghai Banking Regulatory Bureau issued a market warning called "A Correct Understanding of Personal Financial Products". Disputes between consumers and institutions in Shanghai's wealth management market were made public by this 3,400-word report.

Almost at the same time, various banks are "crazy" selling various foreign exchange wealth management products, which makes this report seem a bit out of tune with the current market heat.

In fact, according to people familiar with the matter, as early as the past few months, the Shanghai Banking Regulatory Bureau has issued risk warnings on foreign exchange wealth management products many times, and has issued public warnings on many occasions. From December last year and March this year to the issuance of this report, the frequency of public warnings has become faster and faster, which also shows that there have been more and more disputes between consumers and product distribution agencies.

"Principal Guarantee" is valid for the whole period or until it expires?

"Some products are called guaranteed capital or a guaranteed rate of return, but in the end, even the principal may be lost." Some consumers complained this way. The most fundamental reason is that buyers and sellers of foreign exchange wealth management products have different understandings of "capital preservation", and bank staff did not explain it clearly when selling them.

Ms. Wu, a citizen, had such an experience. In February 2004, she bought a bank's dollar wealth management product. When the bank launched the product, the domestic one-year dollar interest rate was only 0.5625%, and the product had a five-year return of 8%. Because the product contract stipulates that the product term is 5 years, if the product revenue reaches 8% during the period, the contract will be terminated. At the end of the 5-year period, if investors can't get 8% of the income in the market, the bank will make up the difference, which means that the investor will eventually reach 8%. At the same time, the wealth management manager also introduced to Ms. Wu that the annual rate of return of this product in the first half of the year may reach 6%, which is quite high. Ms. Wu immediately bought this product happily, but unexpectedly, in August 2005, a year and a half later, the revenue of this product fell to 0%. In this case, Ms. Wu wanted to terminate the contract early to avoid book losses.

What Ms. Wu did not expect was that a high handling fee would be deducted for early redemption. After deducting the handling fee for the product she bought, the principal will lose 12%. The loss of such a high proportion of the principal is far beyond her psychological endurance, and Ms. Wu feels very aggrieved.

In fact, the "guaranteed income" products that Ms. Wu purchased were not "guaranteed capital throughout the entire process", but "guaranteed capital at maturity". However, when the wealth management salesperson introduced it, he obviously "avoids the important and ignores it", saying, "Our bank does not have the right to redeem this product, but the customer has the right to redeem the product, and the product guarantees 100% return." But if the customer needs to redeem halfway, the bank will A reverse hedging transaction must be done in the international financial market. Since it is a reverse operation, the price is usually much lower, and the capital is not guaranteed.

Each product of the same kind has this kind of "early redemption is difficult to preserve the principal" clause, either hidden or express. For example, a foreign exchange wealth management product recently released by a certain bank said that another famous international bank will provide 100% principal guarantee for the product, but after a closer look, you will find that the guarantee of this other famous bank is only for For mature customers, if they withdraw from the financial plan halfway, they will not be able to enjoy this seemingly heavy guarantee.

How much is the difference between the expected rate of return and the actual rate of return

"The product is called a high-yield product, but it doesn't seem to be the case in the end." More often, consumers will be "deceived". In fact, this involves the issue of "actual rate of return" and "expected rate of return". Consumers tend to see the two as one, and bank salespeople don't explain the connection.

In August 2005, Mr. Wang, a citizen, purchased an investment product linked to the "Dow Jones AIG International Commodity Index" offered by a well-known foreign bank. The product promotional materials said: "The product will be linked to the Dow Jones Industrial Index in the United States, and the Dow Jones Industrial Index at the time of the product's launch will be used as the benchmark, and the upper and lower fluctuation ranges will be set. At 35%, the annual rate of return is expected to be 6%, and when it is greater than 35%, the rate of return is expected to be 8%. The cumulative expected rate of return for 3 years can reach up to 24%." The heartbeat, and the US "Dow Jones Industrial Index", the link object also makes people feel very credible. However, Mr. Wang checked some information afterwards and found that in the past 10 years, the number of years in which the linked index fluctuated by more than 35% was only one year, and there was no such range for three consecutive years. And the proportion of years with fluctuations ranging from 25% to 35% is less than 40%. It can be seen that it is impossible for Mr. Wang to get 6% every year. He consulted some friends and found that the product might end up with an average annual average of just over 4%. But since this product is a three-year term, he can only wait for more than two years, and finally charge a result that is similar to the normal rate of return in the market.

When Mr. Wang purchased the product, he was attracted by the stated rate of return, which was much higher than what the market could offer at the time. But it was later discovered that this highest yield is not as easy to obtain as imagined.

He didn't understand until the end: when the bank promoted the foreign exchange wealth management product, it only emphasized the "highest rate of return", but it did not tell him that he could not know the final rate of return of this product in advance. He had to take responsibility for his choices, but at the same time "hated" the sellers at the time.

Both parties to the dispute are responsible

So, what are the factors that have contributed to the increasing number of financial consumer complaints? You know, in Shanghai, the development of foreign exchange wealth management products only started in the past two or three years.

Shanghai Banking Regulatory Bureau officials believe that the main reason is that local consumers have a low level of awareness of risks, and the bank did not clearly explain the potential risks on the spot. Both sides should "play fifty big boards each" or "four or six open".

All along, Chinese residents have a very high degree of trust in banks, and the closest contact between people and banks is savings. Therefore, it is always believed that the bank's products are absolutely safe and completely reliable. Everyone knows that investing in stocks is risky, but a considerable percentage of them are unaware that bank wealth management products are also risky. Some consumers even simply equate wealth management products with savings deposits. In fact, even personal financial products with fixed income and guaranteed floating income may have a risk that the yield to maturity is lower than the annual yield of other fixed income businesses. Insufficient risk disclosure by sales staff and marketing materials leads customers to make wrong purchasing decisions without fully understanding the risks of wealth management products.

On the other hand, in order to pursue market share in personal wealth management business, financial advisors of some commercial banks unilaterally emphasize low risk, high yield and multiple currency options when selling foreign exchange wealth management products, but they do not discuss the possible risks of investment. Sufficient reminders to customers confuse customers' judgments on expected benefits and final actual benefits.

The design of current foreign exchange wealth management products is relatively complex, involving changes in various elements of the foreign exchange market, gold market, crude oil market, stock market and financial derivatives market. Product yields are increasingly complex. Disputes can easily arise when banks sell such risky products to customers who do not have the risk tolerance and expertise.

It can be said that in the disputes over foreign exchange wealth management products, both financial consumers and financial service providers have made some mistakes, and both parties should take some responsibilities and reflect and understand more.

Strengthen cognitive ability to avoid "loss"

Speaking of which, from the personal point of view of financial consumers, how to avoid getting the products they really want in financial consumption?

People in the industry believe that investors should have a clear estimate of their family assets when purchasing wealth management products, and judge the risks they can bear. Does the choice of wealth management products require liquidity or high yield? In addition, customers should carefully read the information of the bank's wealth management products, and strive to improve their risk identification ability and risk tolerance ability. Before purchasing, they should clearly know whether they can redeem in advance. How to redeem early? What is the fee for early redemption? Is the product guaranteed? Is the product a fixed yield or a floating yield? Only by clear consumption can we clearly protect our rights and interests.