Evaluates Customers' Financial Profile

About 11% of the Series 7. This is the homework before any product pitch.

What you must know

Collect investment objectives (income, growth, preservation, speculation), time horizon, liquidity needs, tax situation, other investments, and risk tolerance. A young person saving for a house in two years is not a long-term equity story even if they say they are "aggressive."

Suitability (FINRA Rule 2111)

A recommendation must be suitable for that customer, and the representative must have a reasonable basis to believe the product itself is suitable for someone. Three layers: reasonable-basis (the product is understood), customer-specific (it fits this person), and quantitative (the size and frequency are not excessive).

Risk tolerance vs capacity

Willingness is how the person feels about a drop. Capacity is whether they can afford the drop. A retiree who says "I can handle risk" but lives on the portfolio has low capacity. Suitability follows the tighter constraint.

Senior customers

Extra care for older clients: watch for diminished capacity, rushed "you must buy today" pitches, and products with long lockups or steep surrender charges. Document conversations.