NEW KYC FORM IN HUB TODAY AND REPVISION
 
Effective immediately, we ask that you use the most current version of the KYC that can be generated from RepVision or accessed on HUB Today under the Forms tab in Compliance. Please destroy any blank paper or PDF copies of any other version. 
 
 
COMMON KYC DEFICIENCIES AND BEST PRACTICES
 
One of the key objectives of the compliance department is to develop policies, procedures, and best practices to meet regulatory requirements, corporate policies, and the business needs of our advisors. We thought it would be meaningful to review common KYC deficiencies and put forward some best practice guidelines as we approach the upcoming RSP season. 
 
Knowing Your Client is the cornerstone of the relationship you have with your client and lays the foundation from which you can assist them in planning for their investment and retirement needs. As an advisor, it is your fundamental responsibility to ensure that each order accepted or recommendation made is suitable for the client and in keeping with the client's objectives and risk tolerance. In order to meet this obligation, you must obtain and maintain complete, timely, and accurate KYC information: 

 

  • when opening an account;
  • before trading on behalf of clients; and
  • when client assets are transferred from another institution or from another HUB Capital advisor.
It is also your fundamental responsibility to know the products (KYP) and only recommend products that are suitable for your clients based on their KYC and investment profile.
 
 
COMMON DEFICIENCIES

 

  • KYC updated on every trade ‐ The obligation is to ask if there have been any material changes; however, most clients have long term planning horizons and don’t typically change objectives, risk, etc. very often unless moving into another planning phase or are facing unforeseen circumstances such as job loss, divorce, health, etc.
  • KYC updated with changes in objectives and risk to match/accommodate current portfolio or new investment mix ‐ The portfolio should be reflective of the client’s stated KYC and investment profile. We understand that portfolio drift can have a significant impact on a client’s current portfolio and; therefore, can affect whether the portfolio is still in line with the KYC. To avoid having to make numerous small adjustments to the risk tolerance as market values change, up to 10% of the plan investments may be above the plan risk tolerance. For example, a client with a KYC of 50% income and 50% growth could hold up to 60% in growth and 40% income based on the 10% tolerance. Please note; however, that the 10% variance is only permitted for risk tolerances that are already stated on the client's KYC. For example the client cannot hold up to 10% medium‐high or high risk if their KYC states 100% medium risk.
 
Risk tolerance levels that are overly precise and that exactly match a plan’s current investments may be an indication that risk tolerance hasn’t been adequately considered. For example, a KYC with 23% low, 46% medium, and 31% high risk is unlikely to reflect due consideration of risk tolerance since it would be unusual to have that level of precision in a long‐term plan. However, 33% low, 33% medium, and 34% high would be reasonable as a one-third allocation to each risk level.

 

  • KYC Changes not initialed or dated by client ‐ Any material changes to KYC need to be acknowledged by the client, dated and the client must receive a copy of the updated KYC form.
  • KYC Forms submitted incomplete ‐ KYC often missing information material to determining suitability or to meeting AML and FATCA account opening responsibilities.
  • KYC Forms not dated by client – The client should be dating the KYC form at the time the form is signed and should not be dated by the advisor as this could potentially be considered a presigned form. There are a number of MFDA enforcement cases that have raised this as an issue.
  • No evidence of suitability review or acknowledgement of fees when assets transferred from another institution or HUB Capital advisor – Lack of detailed notes or other evidence of suitability review.
  • No acknowledgement of DSC fees and/or other costs on transfer requests (T2033’s, T2151, etc.) – Documents submitted do not indicate client acknowledgement of fees incurred as a result of a transfer and/or new load types/sales commission disclosure.
 
 
BEST PRACTICES

 

  • Annual meeting with clients to review portfolios and determine if KYC needs to be updated for material changes.
  • Engage in meaningful KYC discussions with clients and consider the use of a questionnaire to facilitate the collection and documentation of KYC information. If possible, meet with clients face to face and ask detailed questions to assist in their understanding of the clients' investment needs and objectives. Keep comprehensive notes of your discussions to demonstrate how risk, objectives, and time horizon was established.
  • Before products are selected it is good practice to separate investment objectives from risk tolerance. A potential product should first be reviewed to ensure that it meets a client’s investment objectives and if so, should be evaluated from a risk perspective to ensure that it falls within a client’s risk tolerance level.
  • Before completing a transaction, ask if there have been any changes to KYC. This discussion will likely not result in any change to the client’s risk objectives. Address portfolio drift by discussing realigning the portfolio to bring it back into line with their objectives and risk profile. Should the client wish to keep the portfolio as is, detailed notes should be provided to this effect and it shouldn’t prompt an update to risk or objectives.
  • When a KYC update is required, process KYC update before transaction to avoid unnecessary delays, supervision queries. New KYCs are required at minimum every 36 months. Any attempts to contact clients for meetings to review portfolios and update KYC should be maintained in the client file. If they are not responsive, send a letter encouraging them to contact you to set‐up an appointment.
  • Maintain professional quality notes – complete, current, correct, and consistent. Include notes on KYC's and transaction documents to assist with documenting issues specific to KYC or transactions. This will clarify it for the client and assist the RCO or Branch manager with understanding the KYC or transaction.
 
Please contact your Regional Compliance Officer or your Branch manager if you have any questions or would like to discuss in more detail.