Knowing your customer and assessing their needs

If you provide financial advice to retail clients, it's important to assess each customer's needs before making recommendations.

Customer information

When you make a personal recommendation to a customer, you must get all the necessary information you need to understand the essential facts about them that are relevant to the nature and extent of the service being provided.

As well as the basic customer details, you should consider the following:

  • Financial situation – do you gather details of their income/expenditure, assets and liabilities and savings or investments?  
  • Investment objectives – do you assess their risk profile and establish the purposes of the investment and period for which they wish to hold it?
  • Knowledge and experience – do you gather information on the types and frequency of any previous transactions they have made and assess whether they understand the complexity and risks of your intended recommendation?
  • Impact of your advice – do you gather information on their tax status and entitlement to state benefits and consider the impact of the advice on these?

Assessing needs and objectives

When you assess a customer’s needs before making a recommendation, you should consider the following:

Areas of advice/need

  • If the customer has more than one need, do you highlight and advise on all their needs, or only the need the customer has asked about?
  • How do you warn them that your advice is limited to one or more needs and the potential consequences of this?
  • Do you assess the customer’s ability to afford the needs identified?

Risk profile

  • Do you have a consistent way of assessing a customer’s risk profile?
  • Is the definition of risk categories you firm uses clear and meaningful to the adviser and the customer?
  • Do you discuss the customer’s attitude to risk across their different objectives?
  • Do your advisers understand how to use a customer’s risk profile in practice when recommending a product and any underlying funds for investment?

Change in circumstances

  • When reviewing an existing customer, do you ensure information you hold on them is updated to reflect any changes in their circumstances such as employment, income, tax status, health, investment objective, attitude to risk?
  • Do you consider whether previous recommendations remain suitable after these changes?