Investment companies are obliged to perform a suitability test on a client before signing a frame agreement with that client to provide him with any individual portfolio management service or investment advising service. A suitability test is performed by investment companies to determine whether an individual portfolio management service or an investment consulting service complies with a client’s investment purposes, financial position, knowledge and experience. An individual portfolio management service or an investment consulting service will be provided in accordance with the result of the relevant suitability test.
1. To perform a suitability test, the investment company will prepare standard forms and use them to receive the following information from the client:
a) Client’s investment purposes and the investment maturity period, risk and return he prefers.
b) Client’s income level and assets to assess whether his financial position is sufficient to cover the investment risks.
c) Client’s age, profession and education level, whether he is a general client or professional client, and the types, nature, volume and frequency of the capital market instrument transactions he did in the past, in order to determine whether or not he has got the knowledge and experience he needs to understand the risks carried by the transactions intended for its portfolio or account.
2. The assessment to be made by an investment company to find out whether a client’s financial position is sufficient to cover the investment risks will be limited to the information given by the client about his income level and assets.
3. The information described in paragraphs (b) and (c) above is not obligatory for professional clients except for elective professional clients.
4. If the suitability test performed on a client proves that a particular individual portfolio management service or an investment consulting service is not suitable for the client, the service in question will not be provided.
5. If a client does not give the information asked from him or gives what is clearly understood to be incomplete or not current information, no individual portfolio management service or an investment consulting service will be provided to him. In this case the investment company will be obliged to notify in writing the client that the service in question will not be provided to him.
6. Clients are responsible for the accuracy of the information they gave for the purposes of suitability test. Investment companies are entitled to ask their clients to update their information at certain intervals.
7. If an investment company learns or finds out while providing a service that some of the information given by a client is incomplete, not current or untrue, it will stop providing the client with that service.
8. Clients must be notified that they are asked to give the said information for the purpose of assessing whether the service or transaction to be provided or made will be suitable for them. Investment companies may not instill their clients not to give the information asked from them.
9. Information and proof documents received from each client to perform a suitability test and the notices sent under paragraph 6 above must be stored for the period stipulated in the applicable regulations of the Capital Market Board.