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HKSI Paper 4 study materials
HKSI Paper 4 study resources

HKSI Paper 4: Client Advisory and Professional Conduct

HKSI Paper 4 · Work through your exam, one topic at a time.

All guide sections

Client Advisory and Professional Conduct

Conduct questions test the SFC Code of Conduct in practice: how a firm knows its client, recommends a product, handles money and securities, manages conflicts and answers complaints.

Suitability and know your client

  • Paragraph 5.2 requires an assessment of the client's financial situation, investment experience and investment objectives before a recommendation.
  • Product due diligence must match the product's risk, complexity and liquidity to the client's profile.
  • The rationale for a recommendation should be recorded, and the suitability assessment refreshed as circumstances change.
  • Execution-only business reduces the suitability obligation but does not remove AML, know-your-client or disclosure duties.

Client assets and order handling

  • Client money must be held in trust accounts under the Client Money Rules; client securities under the Client Securities Rules; no commingling with house assets.
  • Orders must be executed on the client's terms, allocated fairly and not front-run.
  • Firms must keep proper records and reconcile client assets.

Conflicts, disclosure and complaints

  • Paragraph 7 requires conflicts to be identified and managed; commission and soft-dollar benefits must be disclosed.
  • Complaints must be handled promptly and fairly, with records kept.
  • The Investor Compensation Fund pays up to HK$500,000 per investor per default of a licensed intermediary.
  • Disciplinary sanctions can include a fine of up to HK$10 million or three times the profit gained or loss avoided.

Worked example

A 72-year-old client with HK$3 million in savings and no derivatives experience is sold a five-times leveraged equity-linked note. She signs a risk disclosure statement and a form purporting to opt up to professional investor status. The opt-up fails because her portfolio is below HK$8 million, and the signature does not cure an unsuitable recommendation. The firm has breached the suitability requirement and should expect both regulatory and civil consequences.

Traps

  • Treating a signed risk disclosure or professional investor opt-up as a defence to unsuitable advice.
  • Assuming oral instructions displace the recorded risk profile.
  • Failing to document why a product was recommended.
  • Commingling client money with firm money, even briefly.