Know-Your-Client (KYC) & suitability

Account appropriateness asks whether this type of account can hold this client and this kind of activity at all. It comes before any security is chosen.

A margin account for a client with no income and no liquid assets is inappropriate before anything is bought, because the account itself creates a borrowing relationship the client cannot carry. A discretionary account for a client who wants to approve every trade is inappropriate on its face. An order execution only account holding complex leveraged products for a client with no investment knowledge is a problem about the container, not about one trade.

Suitability then asks whether a specific action fits this client's KYC at this moment. Appropriateness is the earlier, narrower question. Suitability is the later, larger one. The sections below take that distinction apart properly, because it is graded at analyze and it is worth marks.

Practically, appropriateness is a check you run at three moments: when the account is opened, when the client asks for a feature the account did not have, and when a pattern of trading starts to look different from the relationship that was documented.