On what basis should customer suitability assessments be conducted?

Customer suitability assessments should be conducted according to the client's risk profile because this approach ensures that the investment strategies and financial products recommended to clients align with their individual financial situations, investment goals, and ability to tolerate risk. Understanding a client's risk profile involves assessing their financial knowledge, investment experience, risk tolerance, time horizon, and overall financial objectives. This personalized understanding allows advisors to recommend suitable investment options, which can enhance the potential for achieving desired investment outcomes while minimizing the risk of substantial losses that could jeopardize the client's financial well-being.

Utilizing a client's risk profile is critical for fostering a trusting advisory relationship and ensuring compliance with regulatory standards for suitability. By doing so, advisors can construct portfolios that match a client’s appetite for risk, thereby making informed decisions that support the client’s unique financial goals.