Investment suitability questions appear in most R06 sittings, and they test a combination of investment knowledge, risk understanding, and the ability to apply both to a specific client. The case study will typically present a client with existing investments, perhaps a SIPP, an ISA, a general investment account, or direct shareholdings, and ask you to assess whether the current arrangements are suitable and what changes you'd recommend.
These questions consistently separate candidates who can think like advisers from those who are still thinking like textbook students.
The assessment framework
Before you start recommending changes, the examiner expects you to assess the current position. This means reviewing what the client holds and identifying any issues. A structured approach works best.
1. Asset allocation and diversification
Look at how the client's investments are spread across asset classes. Common issues the case study will present include:
- Concentration in a single asset class, for example, 100% in equities with no fixed income or cash allocation. This is particularly risky for clients approaching or in retirement
- Concentration in a single stock, if the client holds a large position in their employer's shares or an inherited shareholding, there's concentration risk. The examiner expects you to flag this and explain why diversification would reduce portfolio volatility
- No geographic diversification. A portfolio invested entirely in UK equities is exposed to domestic economic risks. A global allocation provides broader diversification
- Cash drag, if the client holds a significant proportion of their portfolio in cash, they're potentially missing out on real returns, particularly if inflation is eroding the value
2. Risk profiling
The case study will usually state the client's attitude to risk (ATR), often described as "moderate", "cautious", or "adventurous", and may mention their capacity for loss.
Your job is to assess whether the current portfolio matches their risk profile. Common mismatches include:
- A cautious client with 80% in equities
- An adventurous client with 60% in cash and fixed income
- A retired client in drawdown with a growth-focused portfolio and no cash buffer
When you identify a mismatch, explain it clearly: "Karen's portfolio is currently 85% invested in equities, which does not align with her stated moderate attitude to risk and her limited capacity for loss given her reliance on drawdown income."
3. Fund selection and charges
If the case study provides details about specific funds, assess them for:
- Performance relative to benchmark, has the fund underperformed its benchmark over the medium to long term? If so, a fund switch may be appropriate. Always mention benchmarking, examiner reports note that candidates frequently fail to reference it
- Charges, are the charges reasonable? A fund with an ongoing charges figure (OCF) significantly above the sector average may be eroding returns. Compare like with like, active funds will have higher charges than passive alternatives, but the performance needs to justify the difference
- Fund objectives, does the fund's investment objective still match the client's needs? A growth fund may not be appropriate for a client who now needs income
- Active vs passive, consider whether the client would benefit from switching some holdings to passive funds (tracker funds or ETFs) to reduce costs, particularly for efficient market exposures like UK or US large-cap equities
4. Tax wrapper efficiency
Are the client's investments in the most tax-efficient wrapper? Common issues include:
- Holding income-generating investments in a GIA when ISA allowance is unused
- Not maximising pension contributions when the client is a higher-rate taxpayer
- Holding bonds in a pension (where the income is already tax-deferred) rather than in a GIA where the tax treatment of bonds is more favourable for basic-rate taxpayers
This overlaps with tax efficiency, but in an investment suitability question, the focus should be on whether the wrapper matches the investment rather than a standalone tax planning discussion.
The recommendation structure
Once you've assessed the current position, the examiner wants clear, justified recommendations. Use this structure for each point:
What you recommend → Why it's suitable → How it benefits this client
Example: rebalancing a portfolio
Weak: "The portfolio should be rebalanced."
Strong: "James's portfolio has drifted to 75% equities and 25% fixed income, against a target allocation of 60/40 based on his moderate risk profile. Rebalancing back to the target allocation would reduce equity exposure by £30,000, lowering the portfolio's overall volatility and better aligning with his stated attitude to risk and his 5-year investment horizon."
The second answer references the client's name, current allocation, target allocation, risk profile, specific amounts, and time horizon. That's what scores marks.
The questions candidates struggle with
"Assess the suitability of the client's existing portfolio"
This is an open assessment question. Candidates often struggle because they don't know where to start. Use the four-step framework above: asset allocation, risk profiling, fund selection, and wrapper efficiency. Cover each one systematically and you'll generate enough points to match the marks available.
"What changes would you recommend to the investment portfolio and why?"
This is a recommendation question. Each change you recommend must include:
- What the change is (sell, switch, rebalance, move to a different wrapper)
- Why it's needed (misalignment with risk profile, poor performance, tax inefficiency)
- How it benefits the client specifically (reduced risk, better tax outcome, improved diversification)
"Explain the benefits of diversification for this client"
This sounds straightforward, but candidates often give generic answers. Instead of writing "diversification reduces risk," be specific:
- "Diversifying James's portfolio across multiple asset classes, equities, fixed income, property, and cash, reduces the impact of poor performance in any single asset class on the overall portfolio value"
- "Adding international equity exposure would reduce the concentration risk from his current 100% UK equity allocation, providing access to different economic cycles and sectors"
- "Including fixed income assets would provide a more stable return profile, which is important given his moderate risk tolerance and reliance on the portfolio for retirement income within 8 years"
Each of those is a separate, developed point that the examiner can award a mark to.
Benchmarking: the point examiners keep asking for
Examiner reports repeatedly flag that candidates fail to mention benchmarking when discussing fund performance. If the case study states that a fund has "performed poorly" or shows a return figure, you need to compare it to something:
- The fund's stated benchmark (if provided)
- The relevant sector average
- Inflation (for real return context)
Don't just say "the fund has underperformed." Say "the fund has returned 3.2% over 3 years against a sector average of 8.1%, suggesting it has significantly underperformed its peers and a review of the fund selection is warranted."
Benchmarking shows the examiner that you understand performance in context, not just in absolute terms.
ESG and responsible investing
Environmental, Social, and Governance (ESG) considerations are appearing more frequently in R06 case studies. If the client expresses interest in ethical or responsible investing, or if the question asks about ESG:
- Explain what ESG screening means (positive screening for companies with good ESG practices, negative screening to exclude sectors like tobacco or fossil fuels)
- Mention that ESG funds may have a narrower investment universe, which could affect diversification
- Note that ESG integration doesn't necessarily mean lower returns. Many ESG-focused funds have performed competitively
- If the client has existing holdings in sectors they'd want to exclude, flag the potential CGT implications of switching
The investment suitability checklist
Before you move on from an investment question, check you've covered:
- Have I assessed the current asset allocation? ✓
- Have I compared it to the client's risk profile? ✓
- Have I checked fund performance against a benchmark? ✓
- Have I considered charges and fund selection? ✓
- Have I reviewed tax wrapper efficiency? ✓
- Have I made specific, justified recommendations? ✓
- Have I referenced the client's name, amounts, and circumstances? ✓
Investment suitability questions in R06 are predictable in structure, even if the specific details change with each case study. If you have a clear framework for assessment and a disciplined approach to recommendation, you'll pick up marks consistently. The candidates who struggle are the ones who give generic investment advice. The ones who pass are the ones who make every point specific to the client in front of them.