Why should clients be informed about risks related to leveraged investments?

Clients should be informed about the risks related to leveraged investments to ensure that they can make informed decisions about potential outcomes. Leveraged investments amplify both potential gains and potential losses, which can lead to significant risks that may not be immediately apparent to clients. By providing clients with comprehensive information regarding these risks, financial advisors empower them to evaluate their risk tolerance, align investments with their financial goals, and ultimately make choices that are suitable for their individual circumstances. This practice supports ethical standards in the financial industry, promoting transparency and the client's best interests.

Understanding the risks is essential for clients of all types, not just institutional investors, as everyone can be affected by the amplified effects of leverage in their investments. Therefore, keeping clients informed fosters trust and promotes responsible investing practices.