What is required in terms of communicating significant risks associated with the investment process?

Communicating significant risks associated with the investment process is a fundamental aspect of ethical investing and fiduciary responsibility. The requirement to disclose all significant limitations and risks ensures that clients are fully informed about potential adverse outcomes that could impact their investment objectives.

This comprehensive disclosure allows clients to make informed decisions based on their risk tolerance and investment goals. By understanding the complete risk landscape, clients can assess whether the investment aligns with their financial strategies and circumstances. Providing full transparency is crucial not just for client trust but also for regulatory compliance, as various financial authorities mandate complete and clear communication of risks to protect investors.

In contrast, limiting disclosures to only major risks could leave clients unaware of less apparent but still significant risks, which can be detrimental. Likewise, only disclosing risks upon request or deeming them optional based on client experience undermines the obligation to promote informed decision-making and could lead to misunderstandings or misaligned expectations.