An advisor receives a new client, David, who is 70 years old, retired, and lives solely on pension income. David states his primary investment goal is capital preservation and supplementary income. He has an existing portfolio heavily weighted towards high-yield speculative bonds and growth-oriented technology stocks. Which of the following is the MOST appropriate initial step for the advisor under the Know Your Client (KYC) requirements and suitability obligations?

Question: An advisor receives a new client, David, who is 70 years old, retired, and lives solely on pension income. David states his primary investment goal is capital preservation and supplementary income. He has an existing portfolio heavily weighted towards high-yield speculative bonds and growth-oriented technology stocks. Which of the following is the MOST appropriate initial step for the advisor under the Know Your Client (KYC) requirements and suitability obligations?

Answer options:

• Immediately recommend selling all speculative bonds and technology stocks. ✅ Fully document David's investment objectives, risk tolerance, time horizon, and financial circumstances to assess the current portfolio's suitability.
• Suggest David immediately transfer his portfolio to a discretionary management account.
• Advise David to seek legal counsel regarding his previous advisor's recommendations.

Correct answer: Fully document David's investment objectives, risk tolerance, time horizon, and financial circumstances to assess the current portfolio's suitability.

Explanation: The most appropriate initial step is to conduct thorough KYC due diligence by gathering David's complete financial profile. This comprehensive understanding is essential before making any recommendations to ensure suitability.