The Markets in Financial Instruments Directive (MiFID) has made investment firms responsible for the so-called suitability as-sessment. As the recent ESMA guidelines put it: “Investment firms should take steps to ensure that the client understands the notion of investment risk as well as the relationship between risk and return on investments .

1 The advisory process should help determine the client’s attitude to risk (the risk profile) and consequently the types of financial instruments (and specific risks attached to them) that are suitable. Or to put it different, it should align the product profile – the balance between risk and return – and the client profile – the amount of risk the client is willing and able to take given the expected return. The quality of the services depends strongly on the suitability of the advice with respect to the client’s willingness and ability to take short term and long term risk.

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