Category Archives: Risk Tolerance

Investment Advisers Should Utilize Risk Assessment Questionnaires to Determine Each Client’s Risk Tolerance

February 13, 2013

An investment adviser has a fiduciary duty to act in the best interests of its clients and must hold the client’s interest above the investment adviser’s own interest in all matters. Additionally, the U.S. Securities and Exchange Commission (“SEC”) has stated that “several obligations flow from an adviser’s fiduciary duties” including “… a duty to provide only suitable investment advice. This duty generally requires an [investment] adviser to make a reasonable inquiry into the client’s financial situation, investment experience and investment objectives, and to make a reasonable determination that the advice is suitable in light of the client’s situation, experience and objectives.”   For the purposes of ensuring consistency and maintaining appropriate back-up documentation, an investment adviser should establish a standard method for gathering and documenting the minimum information that the investment adviser will require to be gathered from each client in order for the investment adviser to provide suitable investment advice.

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