How KYC Forms Help Protect You as an Investor

Daniel Steinkey |

Ever wonder why your investment funds company regularly makes you fill out those pesky KYC (know your client) forms? It may sometimes seem annoying to fill out essentially the same paperwork over and over, but this is actually for your benefit.

Where KYCs Come From

Your investment advisor is required to invest your money in investments that fit your investment profile. They cannot recommend something outside of your profile.

Who requires this? Whatever governing body covers your investment advisor/company, such as the Manitoba or Ontario Securities Commissions. Throughout history, there have been good financial advisors who work in the best interests of their clients. And, there have also been some bad apples who only work in their own self-interest. One of the ways regulatory bodies have worked to keep bad apples at bay is to require advisors to know their clients and only make recommendations based on their customers’ interests and profile.

How do advisors know what customers want and need? One of the ways they accomplish this is through KYC forms. These forms keep track of basic information, such as your address and date of birth. They also keep track of your finances by looking at your income and what money you already have invested. Finally, they ask questions about your risk tolerance and investment goals. Let’s look at these last two a little more closely.

Risk Tolerance and Investment Goals

 All investing has some element of risk. Unless you park your money in GICs or savings accounts, there is no guarantee of positive returns or that your principal investment will be protected. If you want to invest, you will take on at least some risk.

Your risk profile is meant to determine how much risk you can handle. Some people are more comfortable with risk than others. Part of the KYC is to help figure out how much risk you are comfortable with, so your investments won’t keep you up late at night worrying.

KYC forms also address your investment goals. What is this money for? Retirement 20 years from now? A down payment on a house two years from now? Your plans for your money also help determine your risk tolerance. Even if you feel comfortable with a lot of risk, if you plan to use your principal and growth in a few years time, your risk tolerance will be low due to this shortened time horizon. (You won’t have enough time to weather a sudden market downturn if you need your money in two years.)

Your investment advisor will look at all of this information combined and can only recommend to you products that fit within your profile. If they recommend and you then invest in something outside of your profile parameters, there are checks in place to ensure that this gets pointed out to your advisor. Either your investment will need to change or your KYC will need to be updated.

Why Do I Need to Repeatedly Fill Out a KYC?

 Your KYC is not something you fill out and forget about. Your life situation can change at any time. Maybe you change jobs. Or lose your job. Or you inherit a boatload of money. Or you no longer feel you can stomach as much risk as you used to.

Because our lives are not static, your investment advisor needs to update your KYC form anytime something changes in your life, even if you simply move to a new house.

While it may seem like a chore to keep updating your KYC, remember that it’s meant to protect you and your finances. It will also help ensure your advisor always has the most up-to-date information about you, so they can recommend investment products that truly suit your needs. Who wouldn’t want that?