Know-Your-Client (KYC) & suitability

KYC information is not a form you fill in. It is a body of knowledge you are expected to hold current, and it covers six areas.

Financial circumstances. The file needs:

• Income, and how stable it is.
• Cash and other liquid assets.
• What the client owns, and what they owe.
• Net worth, once the debts come off.
• Whether they use credit to invest, which the exam calls borrowing to invest.

Credit changes the risk picture even when the portfolio does not change. A loan carries a cost and a claim on cash flow, and a fall during a leveraged position can take the client out at the worst moment.

Personal circumstances. Family, dependants, health, employment, a business sale, a divorce, an inheritance that is coming. Facts like these decide whether a technically sensible portfolio is actually usable. A portfolio that needs a decade of patience does not suit a client caring for a parent with no plan in place.

Investment knowledge. What the client has owned, for how long, and what they understood about it. Length of time is not the same as depth. A client who held a balanced fund for ten years is not experienced in options, and treating them as experienced is the kind of error that ends in a complaint.

Investment objectives and needs. Growth, income, preservation, liquidity, a specific purchase. Good objectives are testable. "This money is for a down payment by June 2028" is an objective. "Do well" is a mood.

Constraints and restrictions. Liquidity needs, legal limits, tax position, and personal preferences. Preferences count, and the syllabus is explicit that environmental, social and governance criteria and equity, diversity and inclusion considerations belong in the record where a client raises them. A client who will not hold a particular sector has a real constraint, not a distraction.