Know-Your-Client (KYC) & suitability

A suitability determination is not a one time event. The duty to monitor means the firm and the representative keep watching, and the duty is triggered by change.

Chapter 9 takes the reporting and review side of this duty. Triggering events are the changes that require a fresh look. The syllabus names the categories:

• A change in the client's situation serious enough to revisit the advice: income, employment, family, health, debt, objectives, horizon.
• Product and market research that changes the view of a holding.
• A shift in the economy, in politics or in the wider society, where it changes what a holding is likely to return.
• Emerging issues, financial trends and world news where they bear on the client's holdings.

Notice what is not on the list: a fixed calendar interval. Firms run review cycles, and a cycle is a control. The regulatory duty is to react to change. An answer that says "review annually because the rules require it" has confused a firm's policy with a legal standard.

Two analysis points to carry.

First, change in the portfolio is a triggering event too. Drift happens without a trade: one holding doubles, a sector rallies, a position becomes the whole account. The portfolio the client holds today may not be the portfolio that was approved.

Second, the market can make a product unsuitable without changing the product's label. A fund whose mandate is unchanged can become inappropriate for a client whose horizon shortened. The label is not the analysis.