Know-Your-Client (KYC) & suitability

Two different things get treated as one, and this is one of the traps named in the audit of this subject's question banks. Unsolicited describes where the idea came from. Order execution only describes the kind of account and the absence of an advisory relationship. An order can be unsolicited in an advisory account. A client there can still ask for something you would not have recommended.

So what do you do when a client instructs you to buy something you have determined is unsuitable?

1. Tell the client why it is unsuitable, in terms they can use.
2. Offer an alternative that does the job they want done.
3. If they still insist, obtain and record their instruction, following the firm's procedure.
4. Escalate where the firm's procedure requires it, and document the whole exchange.

The dealer's side of this duty is supervisory. A firm must have a process to identify and deal with unsuitable client directed trades. "The client asked for it" is not the end of the analysis. It is the start of a documented one.