“Know Your Client” (KYC)… or should it be “Know your Advisor” (KYA)?

People who have accumulated a “serious” amount of money by saving and investing it, want to continue to grow and protect it.

How do you define “serious”? It’s different for everyone, but the threshold for most people is “6 figures”. Conveniently, that is also the minimum threshold for many advisors, in terms of what they can accept to help you manage your money.

Ok, you might be thinking, “I get it”. “Pretty smooth segue to suggesting I use an advisor”, then, maybe, “Why would I want to do that”?

Many people who use advisors delegate to them, all the responsibility for taking care of their money, on the assumption that the Advisor is “someone who knows what they are doing”.
Some people use an advisor as a consultant: someone they can discuss ideas and strategy with, and then can facilitate execution.

Some people think they know enough, or can learn enough on their own, to take care of their money on their own.

Some people have had a bad experience with an advisor… or advisors… and don’t know where to turn.

But most people with serious money realize that just like taking on a legal battle or any complicated business transaction, managing their money effectively is not a simple thing to do.

So, if you have “serious money” how are you going to evaluate your advisor or prospective advisor?

How about starting by NOT making the wrong choice make by recognizing what you DON’T want in an advisor? Sounds negative? Not really. Hopefully, by getting the negatives out of the way, you can see the legitimate POSITIVES.

Ken Kivenko, a long-time investor advocate, says: “After years of helping victims with complaints, some common themes emerge”: and that starts with the “KYC” – the form you fill in when you are setting up an investment account.

You will fill in an account opening form before you can have an investment account, regardless of whether you will be getting any personal advice or not. That’s right: whether it is with a discount broker or a robo-advisor or a full service advisor, a bank, MFDA or IIROC, you will complete an account opening form. That form may double up as your “KYC” too – it contains all the information to determine your comfort level with risk, your investment knowledge and how you want your assets to be invested… all the information the investment firm needs to help you correctly allocate your investments. That means it serves to protect the firm from you too, if you decide later, that you think your investments were mis-handled…

SO, IT’S VERY IMPORTANT TO BE “ON YOUR GAME” WHEN YOU ARE COMPLETING THAT ACCOUNT APPLICATION FORM.

DO NOT:

  • Overinflate the value of your home
  • Overinflate the value of any of your other assets
  • Overinflate the value of any of your other assets
  • Overinflate your investment knowledge
  • Understate your liabilities (=debts)
  • Sign any blank forms
  • Let greed tempt you to overstate your risk tolerance

DO:

  • Take careful notes of all conversations with your advisor and retain those notes for easy access.
  • Understand what risky means for you and share that with the advisor
  • Understand the fees you are paying and avoid all “deferred fees” such as “Deferred Sales Charges” (DSC) on mutual funds
  • Be cautious about any “borrowing to invest” strategies:
    • what will happen if they go wrong?
    • Why is your “advisor” recommending this?
    • (don’t forget: more assets = more fees for the advisor)
  • Review all sales confirmation slips and transaction reports and question any you do not recognize
  • Get more educated about investing: “know what you own”
    • You can learn what you need to know a bit at a time:
  • Keep your KYC up-to-date: alert your advisor of any changes, such as retirement, divorce, job loss

Like Ronald Regan said… “Trust, but verify”. That’s a good idea when working with an investment advisor too.

Author: Tom D

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