Are investment firms allowed to use a tick-the-box approach and/or generalizing phrases when stating how the advice meets the retail client’s preferences, objectives and other characteristics in the suitability report?

Answer 10

No. When providing the suitability report according to Article 25(6) of MiFID II and Article 54(12) of the MiFID II Delegated Regulation, firms should state on an individualized basis how the recommendation given is suitable for the retail client.

The suitability report should enable a client to understand if and why the recommendations given are suitable for the client. Therefore the firm should explicitly set forth not only if but how the recommendation (including the recommendation not to sell, buy or hold a product) matches the client’s investment objectives, including his risk tolerance, his financial situation including the ability to bear losses and his knowledge and experience and any other relevant client’s characteristics. To enable the client to compare this explanation with the information submitted by him/her, firms should also refer in the suitability report to the relevant client information that was used for the assessment of the suitability and on which the recommended transaction is based.