In the Handling Client Funds section, the concept of suitability was discussed. The best way to ensure that your investment advice or financial planning recommendations are suitable is to develop a client profile. Be sure to collect the following information at the beginning of your advisory relationship and to update the profile as your client's situation changes over time:

  1. Type of client
  2. Current status
  3. Financial goals
  4. Capital and other needs
  5. Current investments
  6. Risk tolerance
  7. Non-financial considerations

As fiduciaries, investment advisers owe their clients a duty to provide only suitable investment advice. The SEC says, "This duty generally requires an investment adviser to determine that the investment advice it gives to a client is suitable for the client, taking into consideration the client's financial situation, investment experience and investment objectives."

Ensuring investments are suitable for a particular client comes into play during the investment recommendations phase of an investment adviser's work. Suitability rules require that investors have the financial means to assume the risks involved with a particular investment.

The exam is likely to pose questions about suitability under different investor scenarios that use the above factors.



Client Type

Related Articles
  1. Financial Advisor

    What Is Your Client's Willingness and Ability to Take Risk?

    Financial advisors must carefully consider a client's willingness and ability to take investment risks, including tax concerns and liquidity needs.
  2. Financial Advisor

    Choosing A Financial Advisor: Suitability Vs. Fiduciary Standards

    Discover the differences between the Suitability and Fiduciary Standards when hiring a financial advisor.
  3. Financial Advisor

    Investing Other People's Money: 5 Things You Must Know

    Learn the five things an advisor should know before investing another person's money, with a focus on the FINRA "know your customer" rule.
  4. Managing Wealth

    Asset Manager Ethics: Acting In the Benefit of Clients

    Investment managers should always act to benefit the client. Learn what actions managers should take on a client's behalf.
  5. Personal Finance

    When (And How) To Fire A Client

    Firing the clients who take more of your time and effort than the revenue they contribute is a great way to improve your bottom line.
  6. Financial Advisor

    Losing a Client Is Not Always The End of The World

    Losing a client is never pleasant for a financial advisor, but sometimes this is a better outcome than continuing the relationship.
  7. Tech

    Tips for Assessing a Client's Risk Tolerance

    Determining a client’s risk tolerance is a critical piece of the puzzle in designing and appropriate asset allocation.
  8. Financial Advisor

    5 Traits the Best Financial Advisors Share

    Discover what the best financial advisers share in terms of the traits they possess, and learn what clients value most in their advisers.
  9. Financial Advisor

    How to Construct an Annual Review for Clients

    One of the best things that advisors can provide to clients is an annual review of their financial situation. Here are some guidelines.
  10. Financial Advisor

    Keys to Keeping Millionaire Clients

    Almost half of millionaires would not recommend their advisor. Here's how to keep these clients happy.
Frequently Asked Questions
  1. What is the difference between a capital expenditure and a revenue expenditure?

    Capital expenditures represent major investments of capital that a company makes to expand its business and generate additional ...
  2. What is the difference between revenue and income?

    Revenue is simply the total amount of cash generated by the sale of products or services associated with the company's primary ...
  3. How can my stock's price change after hours, and what effect does this have on investors? Can I sell the stock at the after-hours price?

    When the regular market opens for the next day's trading, stocks may not necessarily open at the same price at which it traded ...
  4. What's the difference between a 401(k) and a Roth IRA?

    A 401(k) and a Roth IRA differ primarily on tax treatment, investment options, employer involvement, and limitations on contributions ...
Trading Center