When you conduct investment business for private customers, you must ensure that you take reasonable steps to ensure that they understand the nature of the risks involved with the transaction ( COB 5.4.3 R).
You must establish what each client considers an acceptable level of risk to be for him or her and advise him or her on that basis. When you have a clear understanding of your client's attitude to risk (i.e. whether they are risk averse or willing to take some degree of risk) you will be in a better position to recommend suitable products.
COB 5.4.3 R refers to the general requirement for an adviser to assess a private customer's understanding of risk for any personal recommendation. Special risk warnings apply in addition for:
The following sections are also relevant:
•'Clear, fair and not misleading' - Chapter 9.2 of this Overview;
•'Know your customer' - Chapter 9.8 of this Overview;
•'Suitability' - Chapter 9.9 of this Overview; and
•PRIN 2.1 in the Handbook.