Projection methods Simulating economic scenarios
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.