Conozca a su cliente
Gathering detailed information about a client is nothing new to an advisor who has been doing comprehensive financial plans. However, in recent years, tougher compliance laws have forced all advisors, even those who operate in a very “transactional” manner, to collect more robust KYC information. Quite frankly, to do anything else would be practicing like a medical doctor who spends most of his time writing prescriptions to deal with symptoms rather than doing examinations and tests to lead to a cure.
Unfortunately, many advisors fail to realize the huge direct economic benefit that can accrue to them by simply gathering and documenting information about their clients. Top advisors have processes structured to facilitate data collection from the moment they first come in contact with clients. The best advisors have automated the storage of most of the data so it can be sorted, analysed, and easily used to populate any number of important analysis and reports that can be performed for clients.
The previous segment of this section looked at confirming a client’s goals. Without knowing your client’s goals you can not possibly “know your client.” And despite the fact that the various regulatory bodies may not formally require you to document that your client wants to retire at age 60 on an income of $4,000 per month net after tax indexed to 3% inflation (based on today’s dollars) – you better know, if you really hope to serve your client effectively. So you must know you clients’ goals and objectives.
To be able to say that you “know your client” what data do you need in addition to the goals and objectives that were discussed in the previous segment – Confirming Goals? You must gather at least what is referenced to as Basic Personal Information and Incremental Data Required to Produce Investment Planning Services (both detailed in the third segment – Data Collection Checklists). This provides you with enough information to do an engagement leading to an Investment Policy Statement. The IPS basics are:
- Goals and Objectives
- Basic Personal Information, and
- Investment Planning Data
Having the foregoing data on file will not win a best practice award, but it will allow you to say that you “know your client” well enough to be able to do an IPS, and no doubt comply with your provincial securities laws.
To “know your client” well enough to do a basic analysis in the event of death or disability would require a small amount of additional incremental data. That data is also summarized in the Data Collection Checklists segment. It is referred to as Incremental Data Needed to Provide Needs on Death and Disability Services. With this information you will “know your client” well enough to provide a basic analysis in the event of death or disability, and could carry out a modular engagement to do a basic pre-retirement death and disability analysis.
For you to really know your clients’ long terms needs in the event of death it is necessary to collect more detailed data about your client’s retirement plans. Once again this is referenced in the Data Collection Checklists segment. It is referred to as Incremental Data Needed to Provide Retirement Planning Services. With this additional information you are able to analyze your clients’ long term insurance requirements, and, in fact, accept an Engagement Agreement to do a lifetime risk management analysis.