Client onboarding, suitability and advice boundaries
What this domain tests
Where advice ends and execution-only begins, what a suitability process must contain, and the onboarding controls - KYC, vulnerability, adviser due diligence - that a platform must operate.
Advice, guidance and execution-only
- Regulated advice is a personal recommendation. Guidance is generic information with no recommendation. Execution-only involves no advice, and firms must not drift into implying suitability.
- Appropriateness or eligibility tests apply to complex products; non-advised sales of packaged products require information about knowledge and experience.
- Platforms must ensure the adviser is authorised and holds the right permissions, and must not facilitate unregulated introducers who are effectively advising.
Suitability
- COBS 9 requires a suitability report for advised sales covering demands and needs, risk profile, capacity for loss, costs and why the recommendation is suitable.
- Risk tolerance, attitude to risk and capacity for loss are three different things. Capacity for loss is the financial ability to absorb a fall.
- DB pension transfers are high-risk: triage, abridged advice, specialist referral, contingent charging banned since 2020, and the transfer must be in the client's best interests.
Onboarding controls
- MLR 2017: identity, address, source of funds and wealth, PEP and sanctions screening, ongoing monitoring.
- Vulnerability under FG21/1: identify drivers of vulnerability and adapt the process and communications.
- Insistent clients: document the client's instruction, but consent does not cure unsuitable advice.
Worked example
A client wants to move a £400,000 SIPP to the platform execution-only after dealing with an unregulated introducer. The platform should decline unless an authorised adviser is involved, and should consider a suspicious activity report if the arrangement looks like unauthorised advice or a scam. Reason: the platform's permissions do not extend to advising, and facilitating unregulated pension advice breaches COBS and FCA expectations on transfers.
Traps that cost marks
- Treating a risk questionnaire score as the suitability decision - it is one input among several.
- Confusing capacity for loss with attitude to risk.
- Assuming a signed insistent-client letter removes the firm's obligations.
- Forgetting that KYC is ongoing, not a one-off onboarding step.