Sales Process, Suitability, Disclosure and Client Risk Profiling
What the exam tests
This domain tests the sales process from fact-finding to application: financial needs analysis, risk profiling, product matching, disclosure, suitability documentation and cooling-off. The exam favours practical mis-selling scenarios.
Process and suitability
The intermediary should collect the client's financial situation, objectives, time horizon, liquidity needs, investment knowledge, dependants and risk tolerance. A risk profiling questionnaire produces a risk score; the product's risk rating should not exceed the client's tolerance. There is no execution-only route for ILAS: a suitability assessment is required. The intermediary must explain the insurance and investment features, charges, fund choices, surrender risk, currency risk and the 21-day cooling-off right. The client should receive the product key facts statement and illustration before applying.
Documentation includes the financial needs analysis, risk profile, suitability statement or declaration, application and disclosure records. If the client insists on a higher-risk product, the intermediary should not simply record an override; a genuine mismatch should be declined or escalated. Vulnerable clients, such as elderly or less-educated customers, need extra care and clear explanation.
Worked example
A 68-year-old retiree with savings of HK$500,000, no investment experience and a stated need for stable income is scored low risk. An agent recommends an ILAS investing 90% in emerging-market equity and explains only the potential return. The recommendation is unsuitable: the product risk exceeds the client's tolerance, the time horizon and liquidity needs are not matched, and the charges were not explained. The correct approach is to consider a lower-risk allocation or decline the sale, document the fact-find and provide the key facts statement. If the client later complains, the file is likely to show a mis-sale.
Traps
Do not complete the risk questionnaire for the client or coach answers. Do not treat a signed suitability statement as proof of suitability. Do not compare only headline returns. Do not omit charges, surrender penalties or currency risk. Do not sell to a client who cannot afford the premium. Do not forget to explain the cooling-off period. Do not use past fund performance as a promise.