Dale Jackson

Personal Finance Columnist, Payback Time

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A new report from the Ontario Securities Commission suggests financial advisors aren’t taking enough time to get to know their clients.

While advisors and firms get a passing grade on keeping up with regulatory changes, the old personal touch appears to be falling behind. 

“We are disappointed that, as in previous years, the most common deficiencies relate to know your client and suitability,” writes Debra Foubert, director of compliance and registrant regulation at the OSC.

Investors might be surprised to learn that the “know your client” rule is a real thing. The rule requires new clients to fill out a questionnaire that includes specific personal details like assets, income, debt, marital status, dependents and retirement goals. The rule also calls for advisors to keep up with major changes in a client’s personal and financial life.

The rule basically boils down to two questions:

1. Is the investment right for the client?: Advisors need to determine if the investment in question, and the amount invested belongs in the broader portfolio. More importantly, they must determine if the investment is too risky for someone nearing retirement or not risky enough for a young investor to meet growth goals.
2. Does the client understand the investment or the investment advice?: Technically, all investments carry a risk. It is up to the advisor to explain the risk level and ensure the client understands. Clients who lose money on an investment can argue for compensation if they can prove it was not properly explained to them. Even investments as simple as mutual funds or exchange traded funds can not be sold to a client that does not understand how they work. 

The "know your client" rule is a two-way street. It’s important for a client to educate themselves on investing to a certain degree. No one should care about your finances as much as you do.