The Ontario Securities Commission (OSC) has launched a Know Your Client (KYC) and Suitability initiative. The context is National Instrument 31 – 103, which establishes the requirements for securities registrants. Their goal is to confirm the obligations of dealers and financial advisers with regards to KYC and suitability obligations.
All KYC obligations originate when advice is first offered, and no later than when an account is opened. The OSC requires that registrants have sufficient information to comply with suitability obligations. The suitability obligation requires advisers to fine-tune their recommendations to the specific financial circumstances of the client. This is a dual obligation of both the financial adviser and the dealer. It compels them to investigate the client’s financial circumstances.
KYC is not simply a matter of filling in a standard form. The OSC requires the financial adviser to use professional judgment with respect to each client’s investment knowledge, financial goals, risk tolerance and investment horizon. KYC is a process by which the financial adviser gets to know the client to be able to make these judgements.
Judgment calls that are identified by category or number must be fully explored with, and explained to, the client. Otherwise, they are meaningless, because the client's investment knowledge is very important. Clients do not know what their knowledge is relative to other clients and to informed consent. To paraphrase Donald Rumsfeld, “they don’t know what they don’t know”. The same is true for their goals, risk tolerance and investment horizon. Financial advisers have an obligation to make suitable recommendations. They can only do this with a full understanding of the financial circumstances of the client.
The financial adviser is not alone in this obligation. The OSC also requires the dealer to supervise this application of professional judgment and to ensure compliance with the best interests of the client. Neither the financial adviser nor the dealer can rely on clients to shorten or pre-empt a robust investigation into their true financial circumstances.
All true professionals are mandated to work in the best interests of their clients. Financial advisers must agree that this is their personal standard. By performing proper KYC and KYP (Know Your Product), financial advisers and dealers can make suitable recommendations to their clients, as required by the OSC.
If your client requires timely and effective legal advice from the experienced lawyers at MBC Law Professional Corporation, we are professionals who are already on your side. Contact Harold Geller or John Hollander toll-free at 1-888-288-2033 ext. 234 or by email.