Only those who genuinely possess fiduciary duty can generate credit, and only when every link in the chain has trustworthy intermediaries can the overall credit of the financial market be established. Free competition, survival of the fittest, coupled with legalized regulation and long-term practice, are necessary to create a truly efficient and credible financial market.
What does this sentence mean?
This passage profoundly reveals the core logic of the financial market—how 'credit' is born and sustained.
It traces the cornerstone of the financial market from the micro-level 'individual' all the way to the macro-level 'institution.' In simple terms, this passage expresses a core viewpoint: The essence of finance is credit, and the establishment of credit relies on the combined action of 'conscience' (fiduciary duty), 'transmission' (the intermediary chain), and 'environment' (institutions and competition).
To help you understand more intuitively, we can break down this passage into three levels:
"Only those who genuinely possess fiduciary duty can generate credit"
Meaning: The financial industry essentially involves managing money for others (whether it's fund managers, bankers, or corporate executives).
Key Concept: Fiduciary Duty. This is not just about 'being responsible'; it refers to a legal and moral obligation to place the client's interests above one's own.
Interpretation: Only when those managing funds are not merely seeking management fees but genuinely revere others' wealth as if guarding their own can the most primitive 'trust' be generated. Without this professional integrity, no matter how perfect the contract is, credit remains hollow.
"and only when every link in the chain has trustworthy intermediaries can the overall credit of the financial market be established."
Meaning: Financial transactions are often long and involve many links (e.g., investor -> bank -> auditing firm -> rating agency -> listed company).
Interpretation: The financial market is an ecosystem.
If a listed company commits fraud, but the auditor is trustworthy, the landmine can be defused.
If the listed company is genuine, but the investment bank misleads, investors still suffer losses.
Barrel Effect: As long as one intermediary in the chain (e.g., a rating agency giving false ratings, an accounting firm cooking the books) lacks integrity, the entire market's credit system collapses, leading to systemic risk (like the 2008 subprime mortgage crisis).
"Free competition, survival of the fittest, coupled with legalized regulation and long-term practice, are necessary to create a truly efficient and credible financial market."
Meaning: Relying solely on human morality (fiduciary duty) is insufficient; there must be mechanisms to punish the bad and reward the good.
Three Key Elements:
Free competition / Survival of the fittest: The market must be ruthless. Companies that cook the books must go bankrupt; funds that misbehave must fail. If the bad are not eliminated, due to 'bad money driving out good,' those with integrity will suffer instead.
Legalized regulation: There must be strict laws as the bottom line. The cost of wrongdoing must exceed the benefit for integrity to become 'valuable.'
Long-term practice: Credit is not built in a day; it requires time to sediment. A market's maturity needs to be tempered through cycles.
This passage is actually criticizing or reflecting on those 'superficially prosperous but foundationally weak' financial phenomena.
It tells us: A healthy financial market cannot be judged merely by the bustling trading volume; we must look at:
Missing any one link, so-called 'financial innovation' or 'market prosperity' may be castles built on sand.
Are you researching financial regulatory policies, or did you encounter this sentence while analyzing a specific business case (like a certain financial product that has imploded)?
Why is it that only those who genuinely possess fiduciary duty can generate credit?
This is a very profound question that touches the core of finance—the 'Principal-Agent Problem'.
Simply put: Entrusting money to others to manage (the essence of finance) is an extremely counter-human-nature act. Only 'fiduciary duty' can solve this counter-human-nature dilemma, thereby allowing 'credit' to be born.
Here is a breakdown of the underlying logic:
In the financial world, when you entrust your money to a fund manager, bank, or corporate executive, two huge black holes naturally exist, causing you to dare not trust them:
Information Asymmetry: They are the experts; you are the layperson. They know this investment is actually very risky, but they tell you it's 'guaranteed profit.' You cannot verify their words.
Moral Hazard: If they make money, they get commissions; if they lose money, it's your loss (O.P.M. - Other People's Money). Without constraints, human instinct drives them to gamble rather than protect your principal.
Without 'fiduciary duty,' this is a zero-sum game or even a fraud scene. In such an environment, no one dares to put money out, and credit naturally cannot be generated.
'Fiduciary Duty' is not a simple contract; it is the highest legal and moral standard. It forcibly reverses the aforementioned imbalances to create credit:
Fiduciary duty requires: The fiduciary must place the client's interests above their own.
Ordinary Business Relationship: The melon seller can boast about her own goods; the buyer needs to discern for themselves (caveat emptor).
Fiduciary Relationship: A doctor cannot prescribe unnecessary medicine just to sell it. If a financial fiduciary faces a conflict between 'making money for the client' and 'earning fees for themselves,' they must choose the former.
Result: This legally enforced 'selflessness' allows the capital provider to dare to hand over money with their eyes closed. Daring to hand over money is the generation of credit.
Good intentions alone are not enough; competence is also required. Fiduciary duty requires the fiduciary to be as 'careful and prudent as if managing their own money.'
To help you understand this process more intuitively, I've drawn the following diagram showing the transformation from 'suspicion' to 'credit':
Left Side (Without Fiduciary Duty): The capital owner (Principal) faces immense uncertainty, dares not lend/invest, and the credit chain breaks.
Right Side (With Fiduciary Duty): Fiduciary Duty acts like a bridge. Through legal penalties and moral constraints, it eliminates the risk of 'messing around,' allowing capital to flow safely to the agent (Agent), and credit is thus born.
Financial products are often complex, like a long chain: Saver -> Bank -> Fund Company -> Custodian Bank -> Listed Company -> Auditor
If the listed company has fiduciary duty (operates well), but the auditor does not (stamps for money), then the financial statements are worthless, and investors still dare not invest.
If the auditor is diligent, but the fund manager engages in front-running (insider trading), the investor's money will still be stolen.
Conclusion: As long as one person in the chain feels they 'don't need to be responsible for others' money,' the trust of the entire chain collapses instantly (e.g., the Enron scandal, P2P implosions).
"Only those who genuinely possess fiduciary duty can generate credit" means:
Finance does not run on 'money'; it runs on the belief that "I believe you won't cheat me." And fiduciary duty is the legal and moral guarantee that enables you to dare to trust a stranger and dare to entrust your life savings to them. Without it, the financial market is a casino.
Next Step: If you are interested in a specific financial implosion case (like a recent trust product or a listed company scandal), I can help you analyze exactly which link collapsed from the perspective of 'fiduciary duty.'
Where does fiduciary duty come from? It feels like it should be very rare.
Your intuition is very sharp, even touching the 'pain point' of this concept.
Fiduciary Duty is indeed not humanity's 'default setting'; it was forced into existence.
Your feeling is accurate because, at the biological level, humans are self-interested. Requiring someone to 'place others' interests above their own' completely violates human instinct. So, this thing is indeed 'rare' in nature.
It has become a cornerstone of finance today because of a history filled with betrayal and bloodshed that forced it into being. The most classic origin story goes back to the medieval Crusades.
The birth of fiduciary duty wasn't because everyone was noble; precisely because there were too many bad people.
Imagine you are a British knight, answering the Pope's call to fight in Jerusalem (the Crusades). This journey might take three to five years, or you might never return. What about your vast estates, castles, wife, and children?
You find your most trusted friend, transfer the land to him, and say, "Brother, I'm leaving. Please collect the rents and look after my wife. When I return, give the land back to me." You return after a near-death experience only to find your friend living in your castle, sleeping in your bed, and pulling out a title deed saying, "This is my land; it's written clearly in the law."
You would sue him, but the Common Law judge would shrug and say, "The title deed is indeed in his name. I don't care about oral promises; I only look at documents."
Too many knights were cheated, and they all went to the King to complain. The King handed the matter to the Lord Chancellor to handle. The Chancellor was usually a clergyman (an archbishop) who looked at issues not just based on 'terms' but on 'conscience.'
The Chancellor ruled:
"Although the title deed is in your name (legal ownership under Common Law), your conscience knows this land belongs to another. Therefore, you must hold this land as a trustee, for the benefit of the knight and his family."
This was the prototype of 'fiduciary duty.' It did not arise naturally; it was forcibly created by 'Equity' to patch legal loopholes and combat human greed.
You are right; truly possessing this moral character is scarce. But financial markets cannot rely on 'saints,' so modern law plays a trick of 'substitution':
It forcibly turns a scarce 'moral quality' into a universal 'legal obligation.'
It feels rare because 'normal performance of duty' isn't news.
Billions of trusts, funds, and corporate directors operate normally every day worldwide. They don't abscond with funds or make headlines, just like you don't notice traffic lights turning red and green every day.
Once an Xu Jiayin or a Madoff violates fiduciary duty, it becomes a massive scandal instantly. This creates the illusion that 'the streets are full of scammers.'
Precisely because relying on self-discipline is rare, the law sets fiduciary duty as the highest level of civil obligation.
Burden of Proof Reversal: In ordinary lawsuits, the principle is 'he who asserts must prove.' But in fiduciary lawsuits, if I suspect you mishandled my money, you must prove your innocence, proving you didn't mess up, or you lose.
Not Just About Outcome, But Process: Even if you made money for me, but if you took kickbacks without telling me, you still breached your fiduciary duty and must return the kickbacks.
Since human nature is unreliable, how do we turn 'rare' conscience into 'universal' credit?
Stage One (Natural Human Nature): Self-interest. The knight's friend wants to embezzle the land. Trust cannot arise naturally.
Stage Two (Moral Appeal): The Church says, 'You'll go to hell.' But it's useless; the friend still embezzles.
Stage Three (Legal Violence): Equity intervenes. The Chancellor says, 'You can embezzle, but I'll throw you in prison until you cough it up.'
Result: The friend is forced to generate 'credit.' He doesn't need to be a good person; he just needs to fear the law.
Fiduciary duty is indeed very rare if viewed as a character trait. But it is ubiquitous if viewed as a fear.
The financial market functions not because fund managers have become saints, but because this legal system, evolved from the Crusades era, has raised the cost of 'breach of trust' to a level ordinary people cannot bear.
So, rather than saying we are looking for 'people with fiduciary duty,' it's more accurate to say we are looking for 'people who, under a rule-of-law regulatory environment, dare not be irresponsible.'
Is fiduciary duty well implemented in China?
Let's get straight to the conclusion: On a scale of 0 to 100, China's 'fiduciary duty' implementation currently scores around 50-60.
It's in an awkward adolescence stage: 'The legal text is already quite beautiful, but practical implementation and mindset haven't caught up.'
We can dissect this current state from three dimensions:
If you asked this question ten years ago, the answer was 'almost none.' But now, China's legal framework is actually quite well established.
Progress: The newly implemented Company Law (2024), previous revisions to the Securities Law, and the famous Asset Management New Regulations have all written 'fiduciary duties' (including duty of loyalty and duty of care) into the law.
The Awkward Point: Although the law stipulates that fiduciaries are responsible, there are still not enough judicial precedents.
In the US, if directors mess up, shareholders can initiate a class action lawsuit that can bankrupt them.
In China, although the Kangmei Pharmaceutical case set a precedent for 'special representative litigation,' most of the time, when shareholders suffer losses due to managers 'acting irresponsibly even if not illegally,' winning a lawsuit is still very difficult. Judges remain very cautious when deciding 'what is a business mistake and what is a breach of fiduciary duty.'
This is the biggest roadblock to the development of fiduciary duty in China.
Normal Logic: I give you money (the fiduciary), and you manage it diligently for me. If we lose due to market conditions, I accept it; if you mess up and cause losses, you compensate.
Chinese Logic (Rigid Redemption): Investors don't care about 'fiduciary duty' at all; they only care about 'principal and interest guaranteed.'
To sell products, trust companies, even when projects go bad, borrow new money to repay old debts (i.e., 'rigid redemption').
Result: Since losses are covered by the company, fund managers don't need to be 'honest' with investors; they just need to be 'obedient' to the company. When 'due diligence and exemption' don't exist, and everyone is playing a game of 'passing the parcel,' fiduciary duty becomes a joke.
Good News: The Asset Management New Regulations are forcefully breaking rigid redemption, which is actually forcing the return of genuine fiduciary duty. Only by allowing 'seller be diligent, buyer be responsible' can fiduciary duty find fertile ground.
In the eyes of many Chinese financial institutions, they are not 'stewards' but 'pass-through cashiers.'
Channel Business: Many banks, trusts, and securities firms merely lend their licenses to help others move money.
Party A: I want to lend money to Party B, but compliance doesn't allow it.
Party C (Trust/Asset Management): Give me some fees; I'll pretend to issue a product and transfer the money for you.
The Problem: In this business, the fiduciary is essentially a stamping machine, hardly involving 'prudent management' or 'acting in the best interest.' When things go wrong, everyone starts shifting blame: "I was just a channel; why should I bear fiduciary responsibility?"
Using the earlier 'knight and friend' analogy to describe China's current situation:
The Law (The King): Has already decreed that 'embezzling a friend's property leads to prison.'
The Fiduciary (The Friend): Agrees on the surface but thinks, 'The judges rarely actually convict, and Old Wang next door does it too.'
The Principal (The Knight): Doesn't care much about the friend's character either, only cares about 'Can you give me a guarantee that no matter if the war is won or lost, you'll give me double the land when I return?'
When can it be considered 'well implemented'?
China's fiduciary duty is probably still 5-10 years away from that day.
Then what kind of problems will the lack of fiduciary duty in China cause?
This is a very heavy but also very realistic question. If fiduciary duty is the 'immune system' of the financial market, then China's current state of 'low immunity' is causing various complications.
The lack of fiduciary duty is not just about 'investors losing money'; it is systematically lowering the operational efficiency of the entire Chinese economy. We can look at these 'symptoms' from the micro (individual), meso (industry), to macro (national) levels:
When ordinary people don't believe financial institutions will genuinely be responsible to them, investment behavior becomes distorted.
Short-Term Speculation (Retail Chump Mentality): Since I don't believe you will manage my money for the long term as if it were your own, I dare not hold for the long term either. The result is extremely short holding periods for Chinese funds; everyone is engaged in 'timing the market.'
Consequence: 'Funds make money, fund investors lose money.' Because fiduciaries (distribution channels), to earn subscription fees, even induce clients to frequently 'redeem old funds to buy new ones.'
Bad Money Drives Out Good: Those 'honest' fiduciaries who genuinely conduct deep research and adhere to value investing, because their short-term performance isn't explosive, actually attract fewer buyers. Meanwhile, those with aggressive styles, even those dancing on the edge (betting on sectors, herding), are elevated to guru status.
Consequence: The market rewards 'gambling instincts' and punishes 'rationality.'
Due to the lack of 'trust' based on fiduciary duty, financial institutions lose their core pricing power and can only rely on 'hard assets' for risk control.
Pawnshop Mentality (Emphasis on Collateral, Neglect of Credit): Banks dare not trust a company's business prospects (don't believe the fiduciary will repay diligently), so they only look at how many houses or land plots you have for collateral.
Consequence: Those asset-light high-tech and innovative companies (precisely the direction the country urgently needs to transform towards) find it hard to get financing because they lack property for collateral.
Prevalence of Channel Business (Pimping): As mentioned before, many trusts and securities asset management firms become 'channels.' No one wants to bear fiduciary responsibility; everyone just wants to make quick money.
Consequence: Money circulates idly within the financial system, with layers skimming off profits. By the time it reaches real enterprises, the financing cost is terrifyingly high (even reaching 10%-15%). How can real industry possibly thrive?
This is the most frightening. The lack of fiduciary duty leads to risks being 'concealed' rather than 'resolved.'
The 'Quake Lake' of Rigid Redemption: Because fiduciaries (e.g., wealth managers) are not diligent, and when things go wrong, they fear backlash, they use 'capital pools' to borrow new money to repay old debts, covering up bad loans.
Consequence: Bad loans snowball, creating a surface calm. Once the funding chain breaks, it's a nuclear-level explosion (refer to the implosions of certain large wealth management companies, where trillions vanished instantly).
Resource Misallocation: Money does not flow to the most efficient enterprises but to places with 'rigid redemption faith' (like real estate in previous years, local government financing vehicles).
Consequence: The real estate bubble is inflated, while truly R&D-focused enterprises are starved of capital. This directly slows down the transformation and upgrading of China's economic structure.
To illustrate this logic more clearly, we can look at the following vicious cycle:
One-sentence summary: The lack of fiduciary duty prevents China's financial market, no matter how large its scale, from escaping a situation of being 'big but not strong,' and always leaves a sword of Damocles of 'systemic financial risk' hanging overhead.
What can we do? As ordinary investors, knowing the macro environment is like this, we must learn to 'protect ourselves.' Would you like to learn how, in the current environment, ordinary people can identify those 'slightly more reliable' fiduciaries (fund managers or financial advisors)?