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

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