Suitability Assessment Disclosure
The ESMA (European Securities and Markets Authority) suitability assessment is an important regulatory requirement in the European Union aimed at protecting investors and ensuring that financial firms provide suitable investment products and services to their clients. ESMA is the European Union’s financial regulatory authority responsible for safeguarding the integrity, transparency, efficiency, and stability of financial markets in the EU.
The purpose of the ESMA suitability assessment includes the following key objectives:
Investor Protection: The primary goal of the suitability assessment is to protect investors from unsuitable investments that may not align with their financial objectives, risk tolerance, and investment knowledge. It ensures that financial institutions provide recommendations or advice that is appropriate for individual investors’ specific circumstances.
- Fair Treatment of Clients: Financial firms are required to treat their clients fairly and ethically. The suitability assessment helps ensure that clients are not sold or advised to purchase financial products that are too risky or unsuitable for their financial situation.
- Disclosure of Information: The suitability assessment encourages financial firms to collect and disclose relevant information about clients’ financial positions, investment objectives, risk tolerance, and other relevant factors. This information helps in making informed investment decisions.
- Preventing Mis-selling: The assessment aims to prevent mis-selling of financial products and services. Mis-selling occurs when financial firms recommend or sell products to clients that are not in their best interests but rather serve the firm’s interests.
- Market Integrity: By ensuring that investments are suitable for clients, the ESMA suitability assessment contributes to market integrity and stability. Unsuitable investments can lead to market disruptions and financial instability.
- Regulatory Compliance: Compliance with ESMA’s suitability rules is a regulatory requirement for financial institutions operating within the European Union. Non-compliance can result in regulatory sanctions and fines.
- Investor Confidence: A robust suitability assessment framework enhances investor confidence in the financial markets and the services provided by financial firms. When investors trust that they are receiving suitable advice and products, they are more likely to participate in the markets.
In summary, the ESMA suitability assessment is designed to protect investors, promote fair treatment of clients, and maintain the integrity of financial markets by ensuring that financial institutions offer suitable investment products and services tailored to each client’s individual circumstances and needs. It is an integral part of the regulatory framework in the European Union for the financial industry.
Suitability Assessment – Applicability
J. Knobel Investor Services Limited (the Company”) “shall obtain from Clients all the necessary information in order to perform the required assessments, in an effort to understand / conclude whether an Investment Service or Financial Instrument is appropriate and / or suitable for the Client. In case where the Client fails to provide or does not provide information which is up-to-date, complete, accurate and sufficient for performing the necessary assessments, the Client will be informed that the Company is unable to assess whether the Investment Service or Financial Instrument is appropriate/suitable and may refuse to proceed with the offering of the Investment Service or Financial Instrument. The extent of the assessment that the Company will carry out depends on the type of Client, Investment Service or Financial Instruments offered to its Clients.
When providing non-advised or reception and transmission of orders in relation to one or more financial instruments, the Company assesses the respective knowledge and experience of a client in each of those financial instruments by asking the client to complete the relevant appropriateness assessment questionnaire.
Factors to consider:
In the course of the suitability assessment process client’s investment profile is assessed and evaluated based on four (4) main factors:
- Knowledge and Experience
- Financial Situation
- Investment horizon (as a part of Investment Objectives)
- Risk tolerance/risk preferences (as a part of Investment Objectives)
Scoring:
For personal advisory services a certified investment advisor checks the client’s investment profile based on the client’s replies to the relevant questionnaire and the results of the client’s suitability assessment.
For investment advisory newsletter subscriber’s, the client’s total scoring under each assessed factor is analyzed separately, and a client is sorted into one of the relevant groups for each factor in accordance with the scoring received.
Failure & warning:
As a part of the suitability assessment process, the Company issues the Suitability Report to inform the client that a suitability test has been performed in respect of investment advisory services, containing the results of such tests.
If a client believes that the results of the suitability assessment and the presented investment profile are an inadequate representation of his/her investment objectives, risk tolerance, ability to bear losses, investment horizon or any other circumstances, a client may contact his/her account manager or investment adviser for additional explanations.