Archive / Investment Adviser (Level 2) / Risk Profiling for Investors
nism-series-xb-sebi-ia-regulation-16-risk-profiling[ INVESTMENT ADVISER (LEVEL 2) ]
Under SEBI (Investment Advisers) Regulations, Regulation 16, as explained in the NISM Series X-B workbook, which of the following is a requirement relating to risk profiling before an Investment Adviser (IA) provides advice?
[ A ]The client's risk profile must be done before any investment advice is provided, and no free trial can be offered without communicating the risk profile to the client and obtaining the client's consent on it[ CORRECT ]
[ B ]Risk profiling questionnaires may include leading questions as long as the overall score is accurate
[ C ]Once a client's risk profile is assessed at onboarding, it never needs to be updated again
[ D ]Obtaining the client's consent on the risk profile is optional if the IA is confident in its own assessment
Takeaway
Option A is correct: Regulation 16 requires that risk profiling be completed before any investment advice is given, and specifically that no free trial can be offered without first communicating the risk profile to the client and obtaining their consent on it.
Derivation
The workbook lists several obligations under SEBI (IA) Regulation 16: gathering relevant client information (age, objectives, resources, loans), having an objective process to assess willingness and ability to take risk, ensuring questionnaires are fit for purpose and free of leading or misleading questions, completing risk profiling before any advice or free trial, and periodically updating the risk profile, especially after life events. A common error is assuming risk profiling is a one-time exercise rather than a periodically reviewed requirement.
Why the others fail
B — Risk profiling questionnaires may include leading questions as long as the overall score is accurate
The workbook requires questionnaires to be fair, clear, not misleading, and specifically states they should not contain leading questions.
C — Once a client's risk profile is assessed at onboarding, it never needs to be updated again
The workbook requires that client information and risk profile be updated periodically, including on special events like a change in family composition or income.
D — Obtaining the client's consent on the risk profile is optional if the IA is confident in its own assessment
The workbook explicitly requires the IA to obtain the client's consent on the risk profile before any free trial or advice.