FAE · ASIC Financial Adviser Exam

Client profiles, life stages and risk

Building a client profile: objectives, financial situation and needs, risk tolerance versus risk capacity, life-cycle stage, sequencing risk and Centrelink basics.

Financial advice construction1 min read3 sections

Checked against: Corporations Act 2001 ss961B(2), 961G (compilation 19 Sep 2026); Code of Ethics 2019 Standards 4-6; ASIC Financial adviser exam: Exam preparation guidance v6.0 (Sept 2026), Financial advice construction curriculum and reading list; Services Australia, Age Pension.. Independent prep, not endorsed by ASIC.

Must-know for the exam

Risk tolerance is willingness to accept volatility; risk capacity is the financial ability to absorb losses without harming goals.
A risk questionnaire is one input; s961B(2)(c) requires reasonable inquiries into the client's relevant circumstances.
Sequencing risk is greatest in the years just before and after retirement.
Life-cycle stages help anticipate needs but do not determine asset allocation on their own.
Age Pension age is 67; the income test and assets test both apply and the lower rate is paid.
Women in Australia retire with lower super balances on average, partly because of career breaks and part-time work.

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Traps that cost marks

A high stated tolerance does not create the capacity to recover from losses.
Identical average returns can produce very different results once withdrawals are involved.
A couple may plan jointly, but each partner's own retirement security still matters.
'Best interests' are the client's interests as he understands them, not the adviser's lifestyle model.
Life-cycle stages are starting points, not substitutes for each client's facts.
Long-term return figures are irrelevant to an 18-month goal.
'Average' life expectancy means many people live longer, not that everyone dies by then.
Family interpreters can be convenient but may filter, influence or misunderstand financial terms.

The rule

Advice must be based on the client's relevant circumstances (s961B(2)(a)-(c)) and be appropriate (s961G). Where tolerance and capacity point different ways, explain the trade-off and generally respect the lower of the two.

Common traps

Trap: Do not confuse capacity with tolerance.

Trap: A young client usually has more capacity to recover from falls, but not always more tolerance.

Trap: Sequencing risk matters most when large balances are exposed near retirement.

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