A client, worked end to end
- 1. Know-your-client (KYC) & Suitability
- Calculators and Scratch Paper
- The Relationship the Rules Describe
- Clients Who Live Somewhere Else
- What KYC Has to Cover
- Tolerance, Capacity and Need
- Business Structures and Why They Change the Answer
- Writing It Down, and Having the Client Confirm It
- The Trusted Contact Person, and the Temporary Hold
- Who Owns KYC, and How Current It Has to Be
- What the Client File Holds
- Account Appropriateness
- The Account Types You Have to Compare
- What the Account-opening File Needs
- The Relationship Disclosure Document
- Keeping Confidential Information Contained
- The Welcome Package
- Product Due Diligence and Knowing the Product
- The Suitability Determination
- Unsolicited and Unsuitable Instructions
- Investment Actions
- Why Appropriateness and Suitability Are Separate Tests
- Monitoring, Triggering Events and Change
- Conflicts of Interest
- Outside Activities
- Personal Financial Dealings with Clients
- Standards of Conduct
- A Client, Worked End to End
- Twelve Ways to Lose Marks on This Element
- Fifteen Terms to Own
- One Item From CIRO's Practice Exam
Know-Your-Client (KYC) & suitability
A client, worked end to end
Marcel is 63. He runs a plumbing company with two employees and no business partner. He plans to sell in fourteen months and wants the proceeds invested when the sale closes. He has 260,000 dollars in a registered account now, a mortgage of 90,000 dollars, and a line of credit he uses to smooth the company's cash flow. He describes himself as aggressive. He also mentions, in passing, that he sold everything in 2020 and sat in cash for a year.
Start with what you actually have.
His tolerance is undocumented and probably overstated. "Aggressive" is how he wants to be seen. The 2020 story says something different about how he behaves when prices fall.
His capacity is complicated by the business. The line of credit is not investment debt, but it means his cash flow is already committed. The mortgage is small relative to his equity. The sale in fourteen months is a large, lumpy, uncertain event with tax consequences.
His need depends on what the sale proceeds are for. Nobody has asked. That is the first gap.
The account question comes before any product. A margin account with a business owner who has a line of credit and a sale pending is a leverage question, and the answer has to be argued, not assumed.
The structure matters to the plan. As a sole proprietor he carries the business liability personally, so a liquidity reserve is part of his financial circumstances, not a separate topic.
The conflict in this file is quiet and common: the sale proceeds are a large asset, and a representative who manages them earns more. That is a conflict to disclose and manage, not to resolve by recommending a bigger position.
The recommendation, when it comes, is not a portfolio. It is a sequence.
- Establish tolerance through a conversation about 2020, not a questionnaire.
- Confirm what the proceeds are for, and by when.
- Fix the reserve before investing anything.
- Settle how the sale proceeds arrive, and what the tax position is.
- Only then build the portfolio his need justifies and his stomach can hold.