Ethics, Conduct and Client Suitability
Ethics, Conduct and Client Suitability tests the standards expected when advising retail and institutional clients: honesty, fair dealing, know-your-client (KYC), suitability, conflicts disclosure, confidentiality, and complaint handling. The exam favors scenario questions where the technically possible sale is still improper.
Core rules
- Put the client's interest first; do not misrepresent, omit material risks, or promise returns.
- KYC must capture identity, financial situation, investment experience, objectives, risk tolerance, liquidity needs, and time horizon; update it when circumstances change.
- Suitability requires matching product risk, return, cost, liquidity, and complexity to the client. Concentration, leverage, and illiquidity need explicit justification.
- Disclose material conflicts and compensation incentives; disclosure does not automatically cure an unsuitable recommendation.
- Protect client data under the Data Privacy Act; share only on a need-to-know basis and secure records.
- Under the Financial Products and Services Consumer Protection Act (RA 11765), fair treatment, clear disclosure, and accessible complaint handling are expected.
Worked example
A 72-year-old retiree with low risk tolerance, modest savings, and near-term medical needs is sold a 10-year high-yield bond fund with 15% volatility because 'the yield is high.' Analysis: the recommendation fails suitability on time horizon, liquidity, and risk. A suitable alternative might be shorter-duration investment-grade or money-market exposure. Documenting the rationale and the client's objectives matters; a signed waiver does not make an unsuitable sale suitable.
Traps
Suitability is not just a risk-rating box. Yield alone is not a rationale. A conflict disclosure is not consent to abuse. Do not ignore capacity, vulnerability, or concentration. Confidentiality applies after the sale, not only during onboarding.