A registered dealing representative, Sarah, discovers that her client, Mr. Henderson, a 75-year-old widower, has suddenly decided to invest 90% of his liquid net worth into a highly speculative junior mining stock, despite his stated investment objective of 'capital preservation with moderate income' and 'low' risk tolerance during their last KYC update. What is Sarah's IMMEDIATE ethical and regulatory obligation?

Question: A registered dealing representative, Sarah, discovers that her client, Mr. Henderson, a 75-year-old widower, has suddenly decided to invest 90% of his liquid net worth into a highly speculative junior mining stock, despite his stated investment objective of 'capital preservation with moderate income' and 'low' risk tolerance during their last KYC update. What is Sarah's IMMEDIATE ethical and regulatory obligation?

Answer options:

• Immediately update his Know Your Client (KYC) information to reflect his new risk tolerance and proceeds with the trade. ✅ Advise Mr. Henderson against the investment, provide alternative suitable options, and document the discussion, refusing to place the order if it remains unsuitable.
• Execute the trade as requested by the client, but document that it was an unsolicited order.
• Report Mr. Henderson's decision to her compliance officer as potential elder financial abuse.

Correct answer: Advise Mr. Henderson against the investment, provide alternative suitable options, and document the discussion, refusing to place the order if it remains unsuitable.

Explanation: Under NI 31-103, registrants must take reasonable steps to ensure that any recommendation made for a client is suitable for that client. If a client insists on an unsuitable trade, the representative must advise against it and document the discussion, refusing to execute it if it remains clearly unsuitable.