A mutual fund representative is reviewing a client's account and notices several transactions that appear to be inconsistent with the client's stated risk tolerance and investment objectives documented during the Know Your Client (KYC) process. Specifically, there are frequent buy and sell orders for high-volatility funds, despite the client's profile indicating a moderate risk tolerance and long-term income generation as a primary objective. What is the representative's immediate obligation in this scenario?

Question: A mutual fund representative is reviewing a client's account and notices several transactions that appear to be inconsistent with the client's stated risk tolerance and investment objectives documented during the Know Your Client (KYC) process. Specifically, there are frequent buy and sell orders for high-volatility funds, despite the client's profile indicating a moderate risk tolerance and long-term income generation as a primary objective. What is the representative's immediate obligation in this scenario?

Answer options: ✅ To flag these transactions for further review by their supervisor and initiate a discussion with the client to reassess their investment objectives and risk tolerance.

• To immediately halt all trading activity in the client's account until a full investigation can be completed by the compliance department.
• To proceed with submitting a formal complaint to the provincial securities commission regarding potential client misconduct.
• To send the client a new set of disclosure documents and a risk assessment questionnaire to complete at their convenience.

Correct answer: To flag these transactions for further review by their supervisor and initiate a discussion with the client to reassess their investment objectives and risk tolerance.

Explanation: Inconsistent trading activity with a client's KYC information triggers a suitability concern. The representative's immediate obligation is to escalate the issue for supervisory review and engage with the client to understand if their objectives or risk tolerance have changed, ensuring ongoing suitability.