Legal issues in wealth management products

As China has seen its wealth management industry going crazy recent years, alarm bell is now ringing with China central bank together with other financial supervisory watchdogs just issuing a draft of rules that are aiming to rein in the market and control financial crisis.

Wealth management products most take the form of investors placing funds in the hands of the management institutions such as a bank, trust company, private equity fund, securities companies for purpose of gaining profits.

If something goes wrong with the products which have happened in China in the past, for example, a trust fund put into a real estate development project was unable to recover money as expected, a fundamental question shall be raised as to what kind of legal relationship shall be found between investors and the product managers.

New as it is in China, wealth management industry should be there in UK for decades or if not centuries. I would like to hear your thoughts on the issue and would like to receive some suggested precedent cases that have shaped what it is like in today’s UK.

My understanding of the issue is that there should be a general trust legal relationship between investors and managers despite whatever institutions serving as the product managers and despite that the parties have not expressly intended their relationship to be that of a trust.

With that, the focal point in such disputes is to find out whether the manager has duly discharged its fiduciary duties in managing the products.

Waiting for your thoughts on this and your suggested case precedents. Thanks…

Jason Tian
Dentons Shanghai

My initial reaction is that the client funds must at all times be kept separate from the funds of the wealth managers, just like a solicitors clients / trust account. This means that if the wealth manager goes bust, the clients monies are protected. Also the wealth manager should have insurance sufficient to cover the clients monies in the event of fraud (may be some sort of Professional Association Indemnity Insurance).
In addition, most Wealth Managers will probably be able to give you a sample of their terms and conditions for you to examine.
Also part of the relationship may be governed by contract law rather than trust law, depending upon the nature of the relationship.

Peter Double / Probate Resealing Services.

Hi Peter thanks for your reply.

In practice, most wealth management products are not designated as trust properties when money is transferred to the manager and kept separately.

My question is that without being expressly created as a trust, should this be considered as trust in UK? In China, this can cause confusion.

As for the legal relationship, can you further explain part is contract and part is trust law?

My understanding is that the overall should be that of trust relationship but as between investor and manager, there is a contract as well, so it should be government in some aspects by contract laws.

Jason Tian
Dentons Shanghai