Investment Advice, Client Suitability and Sales Conduct
Knowing the client
Suitability requires collecting financial situation, investment objectives, knowledge and experience, risk tolerance, time horizon and liquidity needs. Risk profiling must be evidence-based rather than one questionnaire score. Appropriateness (knowledge and experience only) applies to execution-only, non-advised business; suitability applies to advised sales.
Conduct of sales
Disclose charges and remuneration, avoid mis-selling and churning (excessive trading to generate commission), document the advice with its rationale, and re-assess when circumstances change. Vulnerable clients, cold calling, marketing claims and adviser incentives receive particular scrutiny. Product governance requires the target market to match the client segment.
Worked example
A 70-year-old retiree needs income and cannot tolerate capital loss; the representative recommends a 3x leveraged equity note yielding 8%. Reasoning: it fails on objectives, time horizon and risk tolerance, and the target market excludes capital-preservation needs. A suitable alternative is short-duration investment-grade bonds or a capital-protected income structure; the representative must record the rationale and decline to proceed if the client insists after a documented warning.
Traps
Treating a signed risk acknowledgement as a substitute for suitability; equating high net worth with high risk tolerance; and ignoring concentration risk because a product is described as guaranteed.