A client is comfortable accepting substantial market volatility and describes their risk tolerance as high.

A client’s overall risk profile must reflect both willingness to accept risk, known as risk tolerance, and financial ability to endure loss, known as risk capacity. When those components differ, CIRO guidance states that the overall risk profile should reflect the lower assessment. Although the client is psychologically comfortable with volatility, the short time horizon and dependence on the invested capital for a home purchase materially restrict the client’s ability to recover from a loss.

Averaging the two assessments would conceal the client’s actual financial vulnerability. The RR also cannot elevate the risk profile simply because a higher-risk investment might offer the return needed to reach the client’s objective. If the goal cannot reasonably be achieved within the client’s risk capacity, the RR should discuss alternatives such as reducing the purchase budget, increasing contributions, extending the time horizon or using a more conservative investment strategy.

The KYC record must accurately document the client’s liquidity requirement, time horizon, financial circumstances and risk capacity. It must never be manipulated to justify a higher-risk recommendation. CIRO’s Retail Securities syllabus specifically includes risk tolerance, risk capacity, risk need and the resolution of conflicts between expected returns and the client’s genuine risk profile.

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