Knowledge and Experience When assessing a client’s knowledge and experience of investments you should also consider this in relation to the products or services being considered. Your assessment of a client’s knowledge and experience should consider: The types of service, transaction, and products/investments with which the client is familiar. The nature, volume and frequency of the client’s transactions and the period over which they have been carried out. The level of education, profession or relevant former profession of the client. When considering a client’s knowledge, care should be taken not to assume that they are aware of all risks associated with a particular product where such risks have not previously materialised. For example, many clients had seen previous ‘precipice bonds’ mature without incident, but remained ignorant of the potential losses that could be incurred until their subsequent bonds matured and crystallised a loss. The same is true of many clients who bought endowment contracts in the 1980s and 1990s. It is important to ensure that the information gathered as part of this assessment is consistent with other information gathered e.g. in the fact find. Any inconsistencies should be discussed with the client. These discussions should be documented, and the outcome of the assessment confirmed to the client in the suitability report. This will help to evidence that both the adviser and the client understand the risk classification that has eventually been reached. To assist with this assessment a is available. Attitude to Risk It is imperative that: A client understands the types of investment risks they may be exposed to, and that; They reach an understanding of how much risk they are prepared to accept in making their own investments (their ‘appetite for risk’). The adviser’s role in both these aspects is key and a recommendation cannot be made until a clear understanding is gained. Some clients may have a range of risk attitudes, depending on their objective or the source of funds. For example, whilst one client may simply have an adventurous approach to all investments and pensions, another may be happy to take an adventurous approach to inherited money, but prefer a more cautious approach to the funds they have worked hard to build up within their pension.
Knowledge and Experience When assessing a client’s knowledge and experience of investments you should also consider this in relation to the products or services being considered. Your assessment of a client’s knowledge and experience should consider: The types of service, transaction, and products/investments with which the client is familiar. The nature, volume and frequency of the client’s transactions and the period over which they have been carried out. The level of education, profession or relevant former profession of the client. When considering a client’s knowledge, care should be taken not to assume that they are aware of all risks associated with a particular product where such risks have not previously materialised. For example, many clients had seen previous ‘precipice bonds’ mature without incident, but remained ignorant of the potential losses that could be incurred until their subsequent bonds matured and crystallised a loss. The same is true of many clients who bought endowment contracts in the 1980s and 1990s. It is important to ensure that the information gathered as part of this assessment is consistent with other information gathered e.g. in the fact find. Any inconsistencies should be discussed with the client. These discussions should be documented, and the outcome of the assessment confirmed to the client in the suitability report. This will help to evidence that both the adviser and the client understand the risk classification that has eventually been reached. To assist with this assessment a is available. Attitude to Risk It is imperative that: A client understands the types of investment risks they may be exposed to, and that; They reach an understanding of how much risk they are prepared to accept in making their own investments (their ‘appetite for risk’). The adviser’s role in both these aspects is key and a recommendation cannot be made until a clear understanding is gained. Some clients may have a range of risk attitudes, depending on their objective or the source of funds. For example, whilst one client may simply have an adventurous approach to all investments and pensions, another may be happy to take an adventurous approach to inherited money, but prefer a more cautious approach to the funds they have worked hard to build up within their pension.
2__Guidance_on_Advice_&_Sales_Process.docx