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NISM Certifications · NISM-Series-X-B: Investment Adviser (Level 2) · Case Studies in Comprehensive Financial Advice

Caselet: A client aged 30 with a high risk appetite but no emergency fund and no term insurance asks an adviser to put all savings into small-cap equity funds. Under a comprehensive financial advice approach, what should the adviser primarily do?

The adviser should first advise building an emergency fund and adequate term insurance, then allocate to equity according to risk capacity and goals. Willingness to take risk alone is insufficient; suitability requires considering the client's ability to bear losses as well.

  1. AFollow the client's instruction since risk appetite is high
  2. BRecommend only fixed deposits for safety
  3. CAdvise first on building an emergency fund and adequate term cover, then allocate to equity based on risk capacity and goalsCorrect
  4. DRefuse to advise the client altogether

Explanation

Risk profiling considers both risk tolerance and risk capacity. Without an emergency fund and life cover, capacity is low, so foundations must be built first. Following the instruction ignores suitability, and recommending only deposits ignores the client's long-term goals and tolerance.

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