Client Account Handling, Suitability, and Conflicts of Interest
Account handling
Know the account-opening duties: identify the client, verify beneficial ownership, establish authority and mandates, document investment objectives and risk tolerance, and keep records current. Understand discretionary versus advisory versus execution-only accounts, and that discretionary authority must be documented and cannot be assumed. Know the rules on third-party payments, custody of client assets, and segregation.
Suitability
Suitability requires knowing the client, knowing the product, and matching them. Consider objectives, risk tolerance, financial situation, knowledge and experience, and time horizon. For execution-only, the firm may not need to assess suitability but still must not mislead and must respect appropriateness where required. Understand that a client's instruction does not automatically make an unsuitable recommendation suitable, though it may shift responsibility.
Conflicts
Identify, avoid, manage and disclose - in that order. Disclosure alone is a last resort, not a cure. Common conflicts: remuneration structures, proprietary trading against client orders, gifts and inducements, and personal account dealing.
Traps
- Assuming a signed suitability form immunises the firm.
- Treating disclosure as sufficient to manage a conflict.
- Confusing discretionary authority with a one-off instruction.
- Overlooking that personal account dealing and outside interests can create conflicts.
- Forgetting that inducements must not impair the duty to act in the client's best interests.
Rule of thumb
For any recommendation, document three things: what the client needs, what the product does, and why the match is reasonable despite the conflict. If any of the three is missing, the recommendation is exposed.