Charlotte has received proceeds from a deceased family member’s estate. Charlotte decides to visit Malik, who’s a Dealing Representative at her bank…

Malik has learned about Charlotte's risk tolerance. Risk tolerance is a client's psychological willingness to accept risk in pursuit of higher potential returns. Charlotte's statement that she is "not worried about losing it" is a direct expression of her attitude and feeling towards potential investment losses for this specific amount of money. This indicates a high willingness to take on risk, which is the core component of her risk tolerance.

A. The risk profile is a comprehensive assessment of a client's risk tolerance and risk capacity; Malik has only learned about one component.

B. Risk capacity is the financial ability to withstand losses without jeopardizing financial goals. The source of the funds does not determine this.

C. Risk preference is a more nuanced term, but in the context of the KYC process, risk tolerance is the standard term for a client's willingness to accept risk.

- Canadian Securities Institute. (2022). Investment Funds in Canada Course, Volume 1. Chapter 4, Section 4.2, "Know Your Client (KYC) Information." (Defines risk tolerance as the client's willingness to accept risk and risk capacity as the ability to withstand losses).

- Canadian Securities Administrators. (2012). CSA Staff Notice 31-332: Relevant considerations for determining suitability of investments for clients. (Outlines the components of suitability, distinguishing between risk tolerance and risk capacity).