A client, Ms. Rodriguez, has indicated an annual income of $75,000, investable assets of $200,000, and a long-term goal of funding her children's education in 15 years. Her stated risk tolerance is 'moderate.' The representative proposes a portfolio with 80% equity exposure, including several small-cap growth funds. Upon reviewing the portfolio's projected volatility and drawdown characteristics, it is clear the risk level significantly exceeds 'moderate.' Which of the following is the most appropriate action for the representative, assuming Ms. Rodriguez is hesitant to adjust the allocation but relies on the representative's expertise?

Question: A client, Ms. Rodriguez, has indicated an annual income of $75,000, investable assets of $200,000, and a long-term goal of funding her children's education in 15 years. Her stated risk tolerance is 'moderate.' The representative proposes a portfolio with 80% equity exposure, including several small-cap growth funds. Upon reviewing the portfolio's projected volatility and drawdown characteristics, it is clear the risk level significantly exceeds 'moderate.' Which of the following is the most appropriate action for the representative, assuming Ms. Rodriguez is hesitant to adjust the allocation but relies on the representative's expertise?

Answer options:

• Proceed with the proposed portfolio, explaining that 'moderate' can encompass varied interpretations and documenting the discussion. ✅ Adjust the equity exposure to align with a genuinely 'moderate' risk profile (e.g., 50-60% equity) and re-present the revised plan, explaining why the initial proposal was unsuitable.
• Identify and disclose the conflict of interest arising from the discrepancy between the client's stated risk tolerance and the proposed portfolio's actual risk profile.
• Document the client's verbal acceptance of the higher risk and move forward with the transaction, noting it as client-directed.

Correct answer: Adjust the equity exposure to align with a genuinely 'moderate' risk profile (e.g., 50-60% equity) and re-present the revised plan, explaining why the initial proposal was unsuitable.

Explanation: Under NI 31-103 suitability requirements, the representative must ensure the proposed investments align with the client's actual risk tolerance and investment objectives. When a proposed portfolio is too aggressive for the client's stated risk tolerance, the representative's obligation is to recommend a suitable alternative.