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SeeWhy Financial Learning

Ascertaining Client Needs (Chapter 5)

The first step in the sales process is obtaining "Know Your Client" (KYC) information.

This is logical—you cannot possibly sell appropriate investments to a client if you do not

know their risk tolerance, investment knowledge, time horizon, investment goals, etc.

The purchaser should complete the KYC information with the assistance of the sales

representative. Depending on the financial institution, KYC information can be collected

and recorded on the actual order form or on a separate form.

KYC information should be:

•

Collected before the initial purchase.

•

Reviewed and updated on subsequent transactions

•

Reviewed (at least annually) or sooner if there is a triggering event, such as a

material change in a client's financial circumstances, marital status, financial goals,

risk tolerance, etc.

Note:

Reviewing KYC information on subsequent transactions is critical to ensure that

the investment is appropriate given the client's overall portfolio. For example, a very

conservative investment such as a Treasury bill may be appropriate for a client with a

high risk tolerance if it is being used as an emergency fund. On the other hand, a risky

investment can still form part of a risk-averse client's overall portfolio so long as the

combination of investments results in the desired risk profile.

Joint accounts:

KYC information must be obtained on everyone who has a financial

interest in the account. For example, if an account is held joint by five brothers, KYC

information must be collected on all five.

Fund Facts document:

The Fund Facts document must be given to the client prior to or

directly upon acceptance of a purchase order. The delivery of this document to the client

is what begins the two-business-day right of withdrawal period (discussed in Chapter 6).

If requested, the client must also be supplied with other disclosure documents such as a

prospectus, semi-annual or annual financial statements, management report of fund

performance, or annual information form.