Professional, quality notes are vital to evidencing the appropriateness of KYC information gathering, recommendations, disclosures, service levels, etc. They are also an important first line of defence against a future complaint, civil and/or regulatory action. Additionally, taking notes demonstrates that you are capturing what your clients are saying which assists with formulating solutions and/or recommendations to meet their individual needs. It is important to remember that the obligation and responsibility of advisors is to determine KYC information through the interactive process with the client, then make suitable investments; and not to make the KYC gathering exercise a process whereby the KYC information is being determined based on the objectives and risk tolerance of the funds in the
portfolio, or of the funds being recommended.

 

When Should Notes be Taken?
Notes should be taken to record any contact that you have, or attempt to make, with your client.
  • Outbound calls and inbound calls
  • During client meetings and reviews
  • At the time that the client agrees to proceed with a transaction

 

Note should be Correct, Current, Complete, Consistent and Contemporaneous or the 5 C’s
  • Correct – Notes must be accurate and reflect the information provided by and to the client. You will want to ensure that you have documented information on the background of the client and any needs or concerns that they communicate
  • Current – Files and notes should be kept up to date
  • Complete – There is an expectation that Representatives Know their Client and Know the Product that they are selling. Not only must you have a conversation detailing the attributes and risks associated with a product, you will want to evidence that you have had this discussion. Providing clients with the Fund Fact sheet is helpful; however, please ensure that you also detail in your notes important aspects of the discussion. These details should include the date, time and means (i.e. in person, by telephone, etc.) by which the conversation was held.
  • Consistent – Be sure to make note taking a regular part of your practice. In the event of a complaint or litigation, you will want to be able to demonstrate that the notes were taken at the time of the conversation and not manufactured later.
  • Contemporaneous – It is best to take the notes at the time of the conversation when your memory is fresh.

 

Client Notes and KYC Completion
The process to collect and update KYC information should include a meaningful discussion with the client on risk, objectives, investment experience, etc. This is the opportunity to ensure the information is clearly articulated, understood and documented in the client file. Once the KYC had been established, recommendations for suitable investments can be made. For each section of the KYC, you will want to encourage the client to expand, explain and provide enough detail to enable you to fully understand and document their investment profile.

 

Income and Employment
Engage in conversation with the client to get a full picture of their employment and income situation.
  • When was the last increase in salary?
  • Is a portion commission?
  • How long have you been with your current employer? Are you comfortable with the level of income security?
  • What is happening with your current employer, industry trends and future employability?
  • What are your long term employment goals?

 

Investment Knowledge
It is important to help your client determine what their level of knowledge is. Clients are often knowledgeable when meeting with you and novices when filing a complaint. Determining if a client has a will or a power of attorney, or whether or not they have invested before can help you determine whether or not they have engaged in the planning process before.
  • What is your level of comfort with investing?
  • Do you follow market trends and developments?
  • What sources do you get your information from?
  • Have you worked with an Advisor before?
  • What worked well for you and what did not?
  • Share with me what you know about stocks, bonds and mutual funds?

 

Net Worth
Be prepared to advise what Net worth is, how it is calculated and how it is treated for individual accounts vs. joint accounts.
  • What is the current value of any investments/assets that you currently have – house, savings accounts, investment accounts, car etc.?
  • What are you currently carrying in debt – loans, car loans, mortgage, credit cards, and lines of credit? Are you able to meet your monthly obligations?
  • If necessary ask for supporting documentation (required when pursuing a leveraging strategy)

 

Objective and Time Horizon
Assist the client with determining the objective for the investments and when they will need access to the funds for each type of account. Engage the client in a conversation on how each objective can be best met. This can also help you to determine if the client has reasonable expectations.

  • What are you saving for?
  • When do you intend to use the money?
  • How do you intend to invest? In a lump sum? Intervals?
  • When it is withdrawn, how will it be withdrawn – in a lump sum or in intervals?

 

Risk
In many instances, clients have the goal of making as much money as possible in as little time as possible and will tell you that they are high risk. It is your job to educate them about the levels of risk, the strategies involved and to help them determine what is realistic and likely achievable.

  • Are you comfortable with periodic losses?
  • Are you willing to accept any fluctuation in principal?
  • How much?
  • Are you willing to trade short term losses for long term gains?
  • Do you prefer safer, lower return investments?

 

File Maintenance Best Practices

  • All paperwork should be neat, legible and complete as it speaks to the professional level of care that you put into your business. It is difficult to demonstrate that you have selected the right strategies for your client when writing is illegible and there are errors and/or missing information.
  • Use the client’s own words when taking notes. This demonstrates that you have heard and understood what the client has said
  • Follow Up – Send a summary of key conversations to your client via email or mail detailing the conversation. Keep a copy of the letter or email in the client file.
  • If a client chooses not to follow your advice, ensure that this is documented as well
  • Do not rely on memory
  • Consistent Filing System – establish a system where the practice of note taking and documentation maintained is the same for every client
  • Files should be maintained for each client registration type. For example, for a married couple with individual accounts and one joint account, there should be three separate files and notes for each file
  • Non mutual fund business should be filed in a separate file and ideally in a separate cabinet

 

Client File Maintenance
As per regulatory requirements, notes form part of the client/dealer records and should be readily available and in a format that keeps pace with technological changes. We recommend that where notes are maintained in a contact management system or other database, that a hard copy of the notes be put in the client file, at least annually, to ensure access to the information at a future date.

Client File Note Template
The use of a template is good practice as it establishes consistency across all client files and can serve as a reminder of the types of questions and discussions that you should be entering into with each client. A sample client file template is attached.

The Litmus Test of Good Note Taking
In a recent article for Investment Executive, Ellen Bessner, a leading litigator who has served as legal counsel for many Advisors who have found themselves in the unfortunate position as defendant against a client complaint, suggested the following as a litmus test. “Look at the supporting evidence in the form of documents and notes and ask yourself ‐ Without the KYC form, would there be sufficient information to support the conclusions on it? If the answer is no, then you should change your KYC process to ensure it is more robust. Otherwise, you won’t pass a regulatory or legal challenge – with or without a client’s signature”

Hub Capital Compliance Team is your Resource
Please contact your Branch Manager or Regional Compliance Officer if you have any questions
or need additional guidance on note taking and client file management.