Recommend Counceling

In the book 2 practice test 1 morning session answers, they state that we should recommend counceling if there is a difference in the ability and willingness to take risk. However, when I read the answer key it says

For the exam:

Ability: Average

Willingness: Below Average

Overall: Below Average

How come in the “For the exam” section, they don’t actually recomend any councelling, but subsequently say that we should recommend it in the discussion portion?

Usually they say that only if there is substantial difference between willingness and ability:

  • Above-average ability and below-average willingness: a _ timid _ investor
  • Below-average ability and above-average willingness: a _ reckless _ investor.

Hi Magician, thanks for the response. I think you are complifying the simplicated side of this question. I’m trying to find a definate answer to these situations. If you continue reading the explanations, they mention councelling in situations where ability is average and willingess is above average (1 level difference, instead of 2, so not a substantial difference). I might just be over thinking it… sometimes level 3 is a bit too subjective for me.

deleted comment

I would say that counselling may be required but usually you use the lower of ability and willingness. That should be your conclusion for the IPS. You could mention counselling as a side bar if there are strongly conflicting statements present, such as when a client explicitily states with conviction that he wants to take on a load of risk and wants to be a cowboy, but his ability cannot permit that risk taking whatsoever.

That’s my opinion anyway. L3 requires a lot of judgement - the idea is that a qualified professional should be able to interpret your IPS and be able to implement it on your instructions.

If I recall correctly, the general rule is that an investor’s willingness and ability should be equal. So if willness exceeds ability, so that the investor wants to take risks when he cannot, you would want to educate him on why he cannot do so. And if his willingness is below his ability, you would want to educate him as to why he should take more risks.

Although you can counsel if there is a mismatch between willingness and ability, if you cannot get the two to match, you got to just go with the lower of the two.

Thanks very much for the responses! Good luck with your continued prep