Investment Advisory Process: From Onboarding to Review
This domain tests the full advisory workflow - how an adviser gathers client information, converts it into a plan, recommends products and then monitors the relationship - and the boundary between giving advice and selling products. Questions typically probe sequence, documentation and suitability rather than product trivia.
Know the client before advising
- Collect KYC, income and expense details, net worth, existing investments, loans, insurance cover, tax position, dependants, liquidity needs and time horizon.
- Record risk capacity (the financial ability to absorb loss) and risk tolerance (the willingness to do so) as separate inputs; they frequently diverge.
Advice, suitability and the paper trail
- Convert the profile into an investment policy statement: goals, target allocation with tolerance bands, permitted product universe, benchmark, review frequency and exit rules.
- Every recommendation must be suitable for that specific client and must be recorded with the reasoning behind it.
- Disclose fees, conflicts of interest and whether the service is advisory or execution-only; obtain a signed client agreement.
- Review on a calendar schedule and on trigger events - marriage, job loss, inheritance, retirement, a large new liability.
Worked example
A 35-year-old with a stable salary, a 25-year horizon and an adequate emergency fund asks for "maximum returns". Her questionnaire shows moderate tolerance. The adviser recommends roughly 70:30 equity–debt, built on large-cap and flexi-cap funds, rather than an all-small-cap portfolio, and documents the capacity score, the tolerance score and the drawdown the client confirmed she could live through. Reasoning: the long horizon lifts capacity, but a 100% small-cap recommendation fails suitability because its expected drawdown exceeds her stated tolerance.
Traps that cost marks
Treating a completed questionnaire as the whole process; conflating capacity with tolerance; recommending last year's top performer; omitting the rationale for a product choice; failing to revisit the plan after a trigger event; blurring advisory and distribution roles.