QIA common mistakes
QIA · Understand the traps and how to avoid them.
Treating the suitability assessment as a product-matching exercise, recommending an instrument because it fits the client's stated risk label without documenting the client's objectives, time horizon, liquidity needs, and capacity for loss.
Candidates memorise risk-rating scales and equate a matching number with suitability, skipping the needs-analysis step that regulation actually requires.
What to do instead
Before selecting any product, write out the client's objectives, horizon, liquidity constraints, risk tolerance versus risk capacity, and any constraints; then justify the recommendation against each element in writing.
Applying the fiduciary standard to every interaction regardless of the capacity in which the firm is acting, or conversely assuming a suitability-only standard when discretionary authority has been accepted.
The duty owed depends on the relationship and the service being provided, and candidates collapse the categories into a single rule they memorised.
What to do instead
For each scenario, first classify the relationship (advisory/discretionary vs. execution-only, retail vs. professional) and only then apply the corresponding standard, citing the trigger facts.
Confusing duration with maturity and treating a long-dated bond as low risk because the issuer is high quality, ignoring the price sensitivity to a rate change.
Duration is learned as a formula rather than as a sensitivity measure, so its practical meaning under a rate shock is lost.
What to do instead
For any fixed-income question, compute the approximate percentage price change as modified duration times the yield change, and state the direction explicitly before choosing an answer.
Reading a performance statistic (Sharpe, Treynor, information ratio, alpha) without checking whether the denominator matches the risk being discussed, or comparing ratios computed over different periods and benchmarks.
Candidates pattern-match the ratio name to the word 'risk-adjusted' without verifying the inputs are comparable.
What to do instead
Before comparing, confirm identical measurement period, benchmark, and risk measure; use Treynor only for well-diversified portfolios and Sharpe when total risk matters.
Building an asset allocation from a model portfolio template without reconciling it to the client's constraints, tax position, or existing holdings, producing an allocation that is efficient on paper but unimplementable.
Mean-variance optimisation is taught as a standalone computation, so candidates treat the output as the answer rather than as an input to a constrained decision.
What to do instead
After any optimisation, run an explicit constraints check: liquidity, tax lots, concentration limits, currency, and regulatory restrictions, and adjust the weights accordingly.
Ignoring the after-tax outcome when comparing investment vehicles or planning withdrawals, comparing pre-tax returns across accounts with different tax treatment.
Tax is studied as a separate topic and not integrated into return comparisons, so candidates default to the headline return.
What to do instead
Convert every candidate to an after-tax, after-fee basis using the client's marginal rate and holding period before ranking, and state the assumed tax rate in the working.
Failing to identify a conflict of interest in a scenario involving inducements, third-party payments, or proprietary products, and proceeding without disclosure or mitigation.
Conflicts are recognised only in obvious 'bribe' framings; indirect compensation and soft-dollar arrangements are not spotted as conflicts.
What to do instead
In every scenario, list who pays whom and what non-monetary benefit flows; if any party benefits from the recommendation, treat it as a conflict requiring disclosure and, where possible, avoidance.
Treating risk management as a single volatility number, omitting concentration, liquidity, counterparty, and tail risk from the assessment of a portfolio.
Standard deviation is the first risk measure taught, and candidates substitute it for the full risk picture.
What to do instead
Structure every risk answer across market, credit/counterparty, liquidity, concentration, and operational categories, and note which are not captured by volatility.
Answering a regulatory question from memory of the rule's headline rather than checking which activity, client type, and jurisdiction bring the rule into scope.
Rules are memorised as slogans, and scope conditions (retail vs. professional, advised vs. non-advised) are dropped under time pressure.
What to do instead
For each compliance question, state the scope trigger facts first, then the obligation, then the evidence of compliance; if a scope fact is missing, flag it rather than guessing.
Recording a client's risk tolerance once and never revisiting it, or treating a questionnaire score as a permanent fact rather than a snapshot that changes with circumstances.
The onboarding questionnaire is treated as a compliance artefact to be completed, not as a live input to the ongoing advisory relationship.
What to do instead
Build periodic and event-driven review triggers (life changes, market drawdowns, horizon shifts) and document the review, updating the suitability assessment when inputs change.