Know-Your-Client (KYC) & suitability

A dealer does not execute trades for a stranger and walk away. It takes on a client relationship, and the rules describe that relationship as a sequence of duties: collect information, assess the account, recommend, act, monitor, report, and keep an accurate record of all of it.

The sequence matters because each step depends on the one before it. A recommendation built on stale information is not a recommendation, it is a guess with a letterhead. A monitoring system that was sold to a client whose circumstances changed two years ago is monitoring the wrong person.

Three ideas hold the sequence up.

Trust. The client relies on your judgement in a field they do not work in. That reliance is the whole reason the rules exist, and it is why the standard is not "did the client agree" but "was the advice sound for this client".

Agency. You act for the client. Not for the firm's inventory, not for your own book, not for the product a wholesaler pushed last week. When those interests pull apart, the client's interest wins, and the rules say so in plain language.

Conflicts. Every firm has them. Pretending otherwise is the amateur move. A conflict gets identified, avoided where that is possible, controlled where it is not, and disclosed in language a client can actually use. What is never acceptable is a conflict that quietly shapes a recommendation.

The shape of the relationship changes with the dealer's business model. A full service advisory relationship carries recommendations and a suitability determination on every action. An order execution only relationship is narrower, and the dealer's obligations are correspondingly narrower. Neither is better. They are different contracts of trust, and the exam expects you to name which one you are in before you decide what you owe.