NISM Certifications · NISM-Series-X-A: Investment Adviser (Level 1) · Ethical Issues
Which of the following best reflects the ethical principle of 'suitability' in advising a retail client?
Suitability means recommending products that match the client's risk profile, goals, time horizon and financial situation, after collecting relevant information. It is not satisfied by chasing past returns, pushing products the firm promotes, or merely obtaining a signed risk disclaimer.
- ARecommending products that have delivered the highest past returns in the market
- BRecommending products matched to the client's risk profile, goals, horizon and financial situation after gathering relevant informationCorrect
- CRecommending products the adviser's firm is promoting this quarter
- DRecommending products only after the client signs a risk disclaimer
Explanation
Suitability requires understanding the client's risk tolerance, objectives, time horizon and circumstances and aligning advice to them. Past returns, firm promotion and disclaimers do not establish suitability. A signed disclaimer cannot replace proper profiling.
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