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NISM Certifications · NISM-Series-X-B: Investment Adviser (Level 2) · Risk Profiling for Investors

An adviser has profiled Mr. Sandeep Rao as 'moderate' and recommended a 50:50 equity-debt allocation. After a 25% equity market fall, Sandeep demands to move wholly to debt. Which action is most consistent with good risk-profiling practice?

The adviser should revisit Sandeep's risk profile, discuss whether his circumstances or merely his emotions have changed, document the conclusion, and rebalance only if the revised profile justifies it. This keeps recommendations suitable instead of reacting mechanically to a market fall or to panic.

  1. ASwitch immediately because the client's instruction overrides the earlier profile
  2. BRefuse to deal with the client further
  3. CRevisit the profile, discuss changed circumstances and behaviour, document any revision and rebalance only if it suits the updated profileCorrect
  4. DDouble the equity allocation to average down without consulting him

Explanation

Risk profiles should be reviewed periodically and on triggers such as market stress. The adviser should discuss whether capacity or only temporary emotion has changed, document the outcome and act in line with suitability. Blind switching or increasing risk without consent fails suitability.

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