Consumer Bulletin: An investor’s guide to understanding investment suitability and working with an investment advisor

October 01, 2025

Investing helps to grow your savings, meet your financial goals and secure your financial future, but investing also involves risk and potential for loss. While all investors are interested in maximizing their gains and minimizing their losses, it’s typically not possible to do both at the same time. Generally, higher potential for returns means higher potential for losses. Investing wisely involves balancing your unique financial objectives and risk tolerance, as well as understanding the pros and cons of a wide range of different investments, account types and tax implications. 

To navigate the complexities of investment planning, many Canadians choose to work with an investment advisor to create a strategy that fits their personal financial circumstances. 

Advisors who give personalized advice about investments must be registered with securities regulators and comply with securities laws. One of the most important requirements of securities law for investment advisors is their obligation to align the investments they recommend to their clients with their unique objectives, risk tolerance, and overall financial situation. This obligation is known as investment suitability.  

At OBSI, suitability complaints are among the most common issues that investors raise. In these cases, investors often claim that their advisor gave them bad advice or recommended investments that were too risky and that the firm should be responsible for their investment losses. Firms often respond that they should not be responsible because the investments they recommended were suitable, and the investor accepted the risks.  

Well-informed investors can increase their chances of a positive investing experience by understanding advisors’ obligations, how to share key information with their advisor, ask questions that encourage better outcomes and recognize potential red flags. 

Working with your advisor: What to know about your advisor’s obligations 

Only work with registered advisors 

Only registered advisors can legally give personalized investment advice in Canada. To make sure your advisor is registered, check online at www.aretheyregistered.ca.  

Know what kind of account suits your needs best 

When working with an advisor, you have options about the level of control the advisor will have over the investments in your account. There are two main types of accounts: 

  • Non-discretionary account: Your advisor recommends trades to you and provides advice, but you approve every transaction. You retain final decision-making authority and keep control over your account.
  • Discretionary or managed account: Your advisor makes decisions and trades on your behalf in accordance with an investment plan that you have agreed to in advance. You do not approve each transaction. 

Understand the kinds of investments your advisor can recommend  

The kinds of investments that advisors and firms can recommend to you depend on the registration that the firm has with securities regulators. Some investment firms known as ‘investment dealers’ are able to offer all kinds of investments, but many firms such as mutual fund dealers and exempt market dealers can only offer a more limited range of investments. Be sure to understand these limitations and discuss with your investment advisor whether products of this type are right for you. 

Understand your advisor’s obligations to you 

Registered firms and advisors must comply with a broad range of regulatory obligations when working with you. The most important are that advisors know their client, know their products, and recommend suitable investments.  Below, we explain how these obligations work and impact you as an investor. 

Know-your-client (KYC) obligation  

Your advisor must know you well to properly advise you, which requires them to collect personal information about you by asking a series of questions about your age, employment status, income, debts, net worth, investment experience, needs, goals, attitudes toward risk, and more. They use this information to establish reasonable investment objectives, risk tolerance, and time horizon that align with your unique preferences and needs, allowing them to make suitable recommendations. Advisors must update your details regularly, especially if your situation changes. 

Know-your-product (KYP) obligation  

Advisors must thoroughly understand the investment products they recommend. They are responsible for fully grasping the details of each product’s structure, features, risks, and costs, and keep up with significant changes over time. Advisors can only recommend securities approved by their firm. Good product knowledge helps your advisor to make suitable investment recommendations by aligning your investments with your KYC information.  

Suitability assessments 

Your advisor and firm will assess the suitability of your investments when you open a new account and at critical times, including: 

  • before any significant transactions 
  • at regular intervals during your relationship with the firm (e.g., annually), or
  • whenever you experience major life changes such as marriage, family changes, career changes, inheritances and retirement.  

These assessments help to ensure that your investments remain appropriate for your evolving financial situation and goals. Your advisor should share your suitability analysis and any changes with you. Ask questions to ensure you understand the results. Staying involved helps keep your investments in line with your financial objectives and risk tolerance. 

Disclosure and transparency 

Your advisor and firm must give you written disclosure about your investments and any conflicts of interest between the firm or advisor’s interest and yours. Disclosures should provide you with a range of information, including: 

  • The nature of the advisory relationship between you and your advisor, including the amount of control that they will exercise over your account
  • A general description of the products and services offered by your firm
  • A section that explains that any investment action your advisor takes, recommends or decides on is suitable for you and puts your interests first
  • The KYC information collected
  • Any benefits your advisor will receive or expects to receive in connection with your purchase or ownership of an investment
  • A description of the content and frequency of the reports you will receive for your account(s)
  • Any fees and charges associated with your account(s)
  • A general description of how benchmarks may be used to measure your investment performance 

This transparency helps you understand the nature of your investments, your firm’s business model and how they benefit from the services they provide to you, the costs involved, and the level of service you can expect, empowering you to make informed decisions.  

Understanding how your relationship with your advisor is documented  

You must sign papers to document your legal relationship with the firm and advisor, your acknowledgement of the information you’ve received, and your agreement with the investment objectives and risk tolerance your advisor recommended. This can seem like a lot of paperwork, but each document is important as it establishes the record of your advisor’s compliance with their obligations, and it is the formal record of what you have discussed. Before signing, ask yourself: 

  • Is my personal and financial information captured correctly? Accurate information helps to ensure that your investments will be suitable for you. 
  • Do I agree with the risk tolerance recorded? Consider how much risk you are comfortable with and the amount of financial loss you can withstand, practically and emotionally.
  • Did my advisor explain the recommended investments clearly enough for me to understand them and any risks associated with them? Ask questions about anything you don’t understand.
  • Do I understand the fees and how my advisor is compensated? Your advisor should be comfortable explaining this to you clearly. Consider how your advisor’s compensation may influence their advice.
  • Is the paperwork accurate? Never sign incomplete or incorrect forms. 

Tips for a positive client-advisor relationship 

  • Check if your advisor is registered by visiting www.aretheyregistered.ca.
  • Be honest about your finances and investing experience.
  • Know your risk tolerance – all investments have some risk of loss – and how much risk are you prepared to accept.
  • Double-check paperwork for accuracy before signing.
  • Keep your KYC information up to date by informing your advisor, especially after major life changes.
  • Understand the range of investments that your advisor can recommend to you.
  • Understand the risks and features of your investment products. Ask questions about anything that is unclear.
  • Review your statements to make sure you are aware of any changes in your account. Reach out to your advisor immediately if you see anything unexpected or have any concerns.
  • Talk to your advisor regularly about your financial goals and risk tolerance. Ask questions and adjust your investments as needed.
  • Keep records of all communications and recommendations from your advisor.
  • Stay informed about the market and meet with your advisor if you have questions. 

Remember that your relationship with your advisor is a business relationship that should benefit you both. If anything seems unusual to you or you have any concerns, speak to your advisor about it directly or reach out to the client service team at the firm. They are there to help address and resolve your concerns. 

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