MiFID II requires investment firms to check that any product they advise on or manage is suitable for the client across three dimensions: knowledge and experience, financial situation and ability to bear losses, and investment objectives and risk tolerance. This self-assessment scores each dimension and shows the risk tier those answers would support — for educational purposes only.
What MiFID II Article 25 actually requires
Article 25(2) of MiFID II imposes a suitability obligation on firms providing investment advice or discretionary portfolio management. Before recommending a product or managing a portfolio, a firm must gather information on three areas:
1. Knowledge and experience — Has the client invested before? In which types of products? How frequently? What do they understand about market risk? A client who has only ever held savings accounts lacks the knowledge baseline to be placed in complex derivatives, regardless of their wealth or risk appetite.
2. Financial situation and capacity to bear losses — What is the client’s income, assets, liabilities, and liquidity needs? How much of their wealth would this investment represent? How long can they remain invested? Critically, can they absorb the loss of the investment without materially affecting their financial circumstances?
3. Investment objectives and risk tolerance — What is the investment for? What return do they need? What loss reaction do they have — would a 20% paper loss cause them to sell, or would they hold? What is their stated risk appetite?
Suitability requires all three to align. A recommendation is only suitable if it fits within the constraints of every dimension simultaneously.
How the self-assessment scores you
Each question feeds one of the three Article 25 dimensions. The tool scores each dimension as a percentage of its maximum, then takes the lowest as the binding constraint:
knowledge% = experience score + product familiarity score
financial% = time horizon + buffer + investment as share of wealth
tolerance% = loss reaction + stated objective
binding = min(knowledge%, financial%, tolerance%) → risk tierScores below 20% map to conservative; each 20-point band steps up through moderate, balanced, growth, and aggressive.
The binding constraint principle
The most important feature of this model is that suitability is a floor, not an average. A firm cannot recommend a growth portfolio to a client who has deep market experience and high risk appetite if that client’s financial situation is fragile — for example, if the money is needed within 12 months or represents most of their liquid assets.
Consider a client who has traded shares for a decade (high knowledge) and is comfortable holding through a crash (high risk tolerance), but is investing money they may need within a year that represents most of their savings. The financial dimension scores low, and it becomes the binding constraint. The profile caps at conservative or moderate — exactly what MiFID intends.
The five risk tiers
| Tier | Typical asset class universe |
|---|---|
| Conservative | Cash, money market, investment-grade short bonds |
| Moderate | Investment-grade bonds, mixed funds with low equity |
| Balanced | Mixed equity-bond allocation, diversified funds |
| Growth | Predominantly equity, some alternatives |
| Aggressive | Concentrated equity, complex products (only with proven knowledge) |
Each tier maps to an indicative asset-class universe rather than specific product recommendations. Note that complex products — leveraged instruments, structured notes, options — require explicit knowledge evidence even within an aggressive profile.
This is educational only. It is not personal advice, a regulated suitability report, or a substitute for the formal assessment a MiFID-authorised firm must carry out. Everything runs locally in your browser.