Are losses in financial products entirely the investor's responsibility? | Quick Q&A

Ask AI · Can extensive investment experience exempt financial institutions from statutory responsibilities?

In everyday life, when investors purchase financial products, they may run into issues related to whether financial institutions have fulfilled their suitability obligations, which can lead to disputes. The “Measures for the Management of Suitability of Financial Institution Products,” which took effect recently, provides an important institutional safeguard for protecting investors’ rights and interests. If an investor suffers losses in wealth management, is the responsibility solely on the investor? Can financial institutions be exempt from liability? How can we better safeguard our wealth-management “money pouch”? Let’s look at cases recently released by the Beijing Financial Court.

Q: How can we tell whether a financial institution has fulfilled its suitability obligation?

A: The so-called “suitability obligation” means, in simple terms, that when financial institutions promote and sell wealth-management products, they must fulfill the duty to understand the client and understand the product, and must recommend suitable products to suitable investors.

Based on the case, after the deposit of retired employee Mr. Li matured, under the recommendation and guidance of a customer manager at a certain bank, after failing two risk assessments, Li then filled in the risk assessment results falsely and purchased a 500,000 yuan A trust plan. Two years later, Li redeemed the A trust plan and lost more than 50,000 yuan of principal. Ultimately, the court found that the bank had not fulfilled its suitability obligation, and then determined that it should bear compensation liability within the scope of 30% of the principal loss amount incurred by Li’s investment.

Pursuant to the regulations, during the process of recommending, selling, or trading, financial institutions are prohibited from replacing clients to conduct assessments, or from making improper disclosures. They are also prohibited from conducting assessments after or before selling or trading, or from affecting the authenticity and validity of assessment results through other means. For investors, the risk-level assessment questionnaire must not be completed by someone else without proper authorization, nor may it be falsified. Once an investor signs and confirms it, the investor must bear the corresponding risks.

Q: If someone has extensive investment experience, can they avoid the risk assessment?

A: No. In one case, a trust company argued that if an investor has many years of securities trading experience, has participated in high-risk transactions multiple times, and has the ability to identify and bear risks, then the company’s suitability obligation should be exempted, and the loss was caused by market risk rather than something for which the company should compensate. However, the court did not support this argument and ordered the trust company to pay compensation for the investor’s losses of more than 390 million yuan.

According to the regulations, as the responsible party for suitability management, financial institutions must truthfully collect client information, strictly carry out qualification review and risk disclosures, and fully retain evidence of fulfillment of their duties. Investment experience is only one of the reference factors for assessing an investor’s risk awareness, and it is not a reason to exempt a financial institution from its statutory obligations.

For investors, regardless of whether they themselves have extensive prior investment experience, they should invest rationally, choose products based on their financial situation and risk tolerance, and not blindly follow trends into financial products that exceed their own capabilities.

Q: How can risks be avoided when handling fund conversion business?

A: The case shows that at the recommendation of staff at a certain bank, Shang, who was 65 years old, purchased a fund wealth-management product. After completing the fund conversion operation, the result was a loss of more than 700,000 yuan. The court ultimately ruled that for the loss Shang suffered as a result of the fund conversion, the bank would bear 70% of the compensation responsibility. The reason is that for the newly transferred-in fund, the seller needs to re-conduct risk prompts, risk warnings, and risk confirmations for the investor; the bank was found to have improperly fulfilled its suitability obligation in this process.

It is clear that fund conversion is not a simple after-sales operation. As the fund sales entity, financial institutions should lawfully fulfill statutory procedures such as risk disclosure, suitability matching between investors, and investment confirmation.

To all investors, especially the elderly, it is necessary to genuinely enhance risk-prevention awareness in wealth-management investments, make prudent decisions at all times based on their own risk tolerance, and “don’t invest if you don’t understand, don’t make decisions blindly,” so as to guard your own wealth-management “money pouch.”