Investing 101
Know Your Client Duty
The Canadian securities KYC (Know Your Client) rule is a set of rules that financial advisors and companies (dealers) have to follow when they want to help people invest their money. This rule requires financial advisor and their dealers to ask for personal and financial information from investors and figure out how much risk they can h
The Canadian securities KYC (Know Your Client) rule is a set of rules that financial advisors and companies (dealers) have to follow when they want to help people invest their money. This rule requires financial advisor and their dealers to ask for personal and financial information from investors and figure out how much risk they can handle.
The goal of these rules is to make sure that the investment advice given by financial advisors and dealers fits the investor's needs and is not too risky. This helps to protect people who are investing their money from losing it all because of bad investment advice.
The KYC duty has a few important components that are easy to understand. They include:
- Collecting information: Financial companies need to ask for personal and financial information from their customers. This helps them understand who investors are, their financial situation and their investment goals.
- Risk tolerance: Financial advisors and companies have to assess how much risk their customers can handle when investing their money. This is not the same as how much risk investors are willing to take with their investments. They need to consider factors such as the investor's age, financial situation, employment/retirement, experience with investments, studying of investments and theories of investments, and investment goals. Most investors have no or limited investment knowledge. Most investors should be in low risk or moderate risk investments for 70-90% of their investments.
The KYC process helps financial advisors and dealers recommend investments that are suitable for investors' goals and risk tolerance. By following these components of the KYC duty, financial advisors and dealers can make sure that they are giving investors the best investment advice possible.
NOTE: If a you make a complaint and the dealer suggests that you accepted the KYC factors on a New Client Application Form because you signed it, the dealer is wrong. That position has been debunked by the lead regulators since 2002. Dealers still use it to avoid their own responsbility. This is a bad faith response to your complaint. Next step: complain to the New SRO (formerly either IIROC or MFDA).