What Information does a Company need to ask you?

When you receive investment advice, you are placing a higher degree of reliance on the investment firm than you would do in other circumstances such as in the case of simple non-advisory transactions. You therefore need to have some comfort that the firm understands your individual needs and circumstances so that it recommends the right products for you. The revised Markets in Financial Instruments Directive (‘MiFID II’) requires that the entity carries out a Suitability test, where the firm asks you questions on your financial situation; investment objective and knowledge and experience to reach an understanding of the types of investments that will be suitable for you.

The firm shall, when providing investment advice, before the transaction is made, provide the client with a suitability report in a durable medium specifying the advice given and how the financial instrument recommended meets the financial and investment objective of the client as well as whether the client has enough knowledge and experience to understand the characteristics of and risks associated with that financial instrument.

As part of the Suitability test, you are likely to be asked questions about the following:

  • Your investment objectives 

    • This can include questions about the length of time you wish to hold you investment, your risk appetite and profile, whether you wish to invest in order to earn income or capital growth,

  • Your financial situation

    • Information regarding your financial situation may be obtained through questions about matters such as the source and extent of your regular income, your assets (both liquid assets for example cash as well as illiquid ones like property), any debts you have and other financial commitments.

  • Your knowledge and experience

    • Questions regarding your knowledge and experience can include the types of services and products you are familiar with; the nature, volume and frequency of your previous transactions; and your level of education, profession or former profession.

If a firm does not, or cannot, obtain the necessary information to assess suitability, then it cannot make a personal recommendation. If you provide only limited information, this will affect the nature of the service the investment firm will be allowed to provide to you.

Investment Management

When your investments are managed by a firm, you are reliant on the firm’s decisions and choices. As the firm will not communicate with you every time it makes an investment on your behalf, it will need to have enough information from you at the outset to enable it to provide you with the required service. To achieve this, as in the case of investment advice above, the firm will carry out a Suitability test. If you do not supply the firm with adequate information it cannot provide the service of investment management to you. If you provide only limited information, this will affect the nature of the services the investment firm will be allowed to provide to you.