So why could financial management in the past guarantee principal and make money, yet now it seems to change overnight? What exactly has happened? I believe the main reason is the regulatory authority's introduction of the "breaking of the rigid payout" policy. Speaking of this term, many people might still be very unfamiliar with it. What does it mean?
In simple terms, why wouldn't financial products in the past suffer losses? That's because banks, in order to attract a broad base of investors, would promise an expected rate of return before issuing many principal-protected products. This means that during the operation of the product, no matter what happens, the bank will unconditionally pay out to everyone upon maturity, even if you incur a loss, they would have to pay out of their own pocket, which is what the industry often refers to as "rigid payout."
However, starting this year, such "rigid payout" has been halted, meaning banks are no longer allowed to subsidize the payouts. At this point, many people do not understand, why? Are they afraid of us making money? This seems too unreasonable.
In fact, it's not as simple as that. On the surface, rigid payout seems good, with guaranteed principal and returns, and banks pay out according to the previously agreed-upon returns, while investors can be very confident in receiving their money upon maturity. Isn't this a win-win situation?
In the short term, this is indeed good, but in the long term, it hides a very significant risk factor. Why is that? The answer will be revealed shortly.
Because investing is inherently a risky endeavor, including for banks. Although there are many financial experts managing investments, the unpredictable nature of the capital markets means that no one can accurately forecast them, and no investment can be guaranteed to be profitable without loss.
So under the previous system, once a bank issued a financial product and it suffered losses during its operation, the bank would have to not only cover the losses out of their own pocket but also pay out the promised returns, truly "you have to live with the promises you make, even if it's with tears in your eyes!"Let's consider, if such incidents were to occur frequently, wouldn't banks be overwhelmed? When overwhelmed, they would face operational risks. At that point, it wouldn't just be a few investors affected; the money everyone has deposited in banks could be at risk, potentially leading to bank failures and ultimately triggering systemic financial risks, causing instability in the financial market. Clearly, this is not a situation anyone would want to see.
Based on this premise, regulatory authorities have introduced a policy known as "breaking the rigid redemption," which means banks are not allowed to make rigid redemptions to investors. If they make a profit, it's a profit; if they suffer a loss, it's a loss. There's no need for concealment.
Moreover, the net value of wealth management products can be seen by everyone at any time, making it clear whether they are rising or falling. Whether to buy or not is up to the investors to decide, it's as simple as that.
So, after breaking the rigid redemption, many wealth management products have incurred losses. While this is somewhat related to the recent instability in the external investment market, the policy of banks not underwriting is also a very important reason.
However, there is no need for excessive worry. As the saying goes, temporary market downturns do not represent permanent losses. We must be patient, face the fact that "wealth management carries risks," and still view the significant ups and downs of wealth management products rationally. Maintaining an optimistic attitude and learning more about financial management knowledge, I believe, will be of great help for our future investment and wealth management.
So, what is your opinion on the "breaking of rigid redemption" in bank wealth management?
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