The benefits of completing and updating the Know Your Client form
Security legislation and MFDA Rules require that your advisor make recommendations that are suitable for you based on your investment objectives, risk tolerance and other personal circumstances.
In order to meet this requirement, your firm and advisor need to understand your financial situation, investment needs, objectives, and tolerance for risk. This is referred to as the Know Your Client (KYC) Rule under securities law.
The Mutual Fund Dealers Association (MFDA) is the self-regulatory organization (SRO) for mutual fund dealers in Canada. The MFDA regulates the operations, standards of practice and business conduct of mutual fund dealers (like Educators Financial Group, and their advisors), and their mandate is to enhance investor protection. For more information, visit the MFDA.
When you decide to open an account, you and your advisor will complete a new account application. This application will require you to provide personal information as well as ask you to make certain decisions about your account. Your advisor will use this information to learn about you and your financial needs and to meet regulatory obligations. (You can find definitions to aid you with this process here.)
Know Your Client requires that your firm and advisor collect the following information:
Age
- Benefit: helps your advisor understand your investment time horizon, time to retirement, time to RRSP conversion, risk tolerance, and income needs
Annual Income
- Benefit: helps your advisor understand your cash flow, savings and debt capabilities to determine your appropriate risk and income needs
Net Worth
- Benefit: helps your advisor understand your ability to take risk and identify opportunities for you to invest and make more money or save money on current investment expenses
Investment Objectives
- Benefit: helps your advisor provide the best advice on your investment selections
Time Horizon
- Benefit: helps the advisor understand how long your money can be invested and make the best investment recommendations
Investment Knowledge
- Benefit: helps your advisor understand how simple or complex your investment portfolio should be
Risk Tolerance
- Benefit: helps your advisor understand how much fluctuation or change you can manage in your portfolio to ensure you feel safe and secure
If your account is jointly owned by two or more persons, this information needs to be collected for each owner.
After you open the account, you need to notify your advisor of any significant events that may change your investment objectives, time horizon, investment knowledge, risk tolerance, income and net worth. Here are some examples:
Changes to marital status
- Benefit: helps your advisor determine if you need to change your risk tolerance, asset allocation or income needs
Relocation to another province or territory
- We are only licenced in Ontario and British Columbia
New job or job loss
- Benefit: helps your advisor to review your cash flow and risk tolerance and make recommendations regarding your investment strategy
Long-term illness
- Benefit: helps your advisor make recommendations regarding risk, income payments and cash flow
New debt financing
- Benefit: helps your advisor make recommendations regarding your cash flow, budget, monthly savings plan, risk tolerance and opportunity to save money by considering Educators Financial Group for your financing
Major increase or decrease in your financial resources, for example due to an inheritance
- Benefit: helps your advisor review your overall investments and reassess your time horizon and risk tolerance. It also provides your advisor with an opportunity to make investment recommendations to improve your investment returns
Other changes that require you and your advisor to update your Know Your Client form:
A mutual fund purchase that has a different asset class, risk tolerance or time horizon than your existing investments
- Benefit: helps your advisor recommend any changes to your asset allocation
A mutual fund redemption that changes the percentage you allocated to Income, Medium or Long Term Growth
- Benefit: helps your advisor recommend any changes to your asset allocation
When providing this information, be as accurate as possible. Your advisor will use this information to understand your financial needs and determine what investments are suitable for you.
