The important thing to remember is that the client is the one who foots the bill. You never want to demoralise an applicant, but you can’t waste the client’s time by sending them candidates you know you wouldn’t hire yourself. So this question is designed to determine whether you can diplomatically turn down an unsuitable candidate. There are several ways you can answer this question, but a solid backup is always, “We don’t have anything that’s a good fit right now, but we’ll hang on to your resume and give you a call as soon as something pops up.”