Sales, Suitability and Investor Protection
Domain focus
Sales, suitability and investor protection tests ethical selling: know your client, know your product, match the two, disclose conflicts and handle complaints fairly.
KYC and risk profiling
Collect income, assets, liabilities, dependants, investment horizon, liquidity needs, experience and risk tolerance. Assign a risk profile and document it. A risk profile is not a one-time form; update it when circumstances change.
Suitability
Match product risk to client risk capacity and tolerance. Equity funds suit long horizons and higher risk tolerance; money market and income funds suit short horizons and capital preservation. If no suitable product exists, say so. Record the recommendation and the client’s decision. Avoid churning-switching clients between funds to earn commission.
Disclosure and conflicts
Disclose loads, TER, risks, commission or trailer and the difference between a distributor and an investment advisor. Past performance is not a promise. Shariah compliance, capital protection and liquidity features must be explained accurately.
Investor protection
Investors are entitled to fair treatment, clear information, privacy and a complaint mechanism. Complaints go first to the distributor or AMC; if unresolved, to SECP or MUFAP. The investor bears market risk; no distributor may guarantee returns or capital.
Worked example
A 60-year-old retiree with a one-year horizon and low risk tolerance asks for an equity fund because a friend earned 30%. The suitable route is a money market or income fund, with the equity risk explained. If the client insists on equity, document the advice, the risk disclosure and the client’s instruction; do not promise the 30% return.
Traps
Treating risk profiling as a tick-box; recommending by commission; hiding trailer fees; calling a capital-protected fund “guaranteed”; ignoring liquidity needs; failing to log complaints.