A new discussion paper from the Mutual Fund Dealers Association of Canada (MFDA) examines the prospect of utilizing investor questionnaires as a way for reps to gain insight into clients’ attitudes toward risk, and for fund dealers to beef up their know-your-client (KYC) process.
The MFDA Monday published a Discussion Paper on the Use of Investor Questionnaires that aims to bolster firms’ KYC processes. The paper — which examines issues surrounding the design and implementation of questionnaires to help assess clients’ risk tolerance and capacity — includes a sample survey developed by the regulator, which has also been tested with investors.
The paper notes that while “risk profiling is not an exact science… a well-designed questionnaire can still make an important contribution to the KYC process.” In particular, it suggests that these sorts of surveys can, “help to provide structure, promote consistency and support the discussion a client has with their [rep] regarding their investment needs, capacity to withstand losses and attitude towards risk.”
That said, the paper also stresses that questionnaires, or similar exercises, should only form part of the full KYC process, and that they should just be a jumping off point for a more in-depth conservation “around client goals, product risks and realistic investment return expectations.”
“This is where the experience and knowledge of [a registered rep] can add real value for clients,” it says.
The paper notes that some firms already use these sorts of questionnaires, and that many others “have expressed interest in implementing a questionnaire approach in the future”.
For firms that are considering the introduction of questionnaires into their KYC processes, the paper also indicates that MFDA staff has worked closely with, and provided guidance to, firms that have done this already. And, it says that, if a firm “is considering implementing a questionnaire or otherwise making significant changes to their approach to collecting KYC information or assessing suitability, the [firm] should discuss the proposal with MFDA staff prior to implementation to obtain specific guidance.”
“Since its inception, the MFDA has focused on suitability as a key regulatory priority,” said MFDA president and CEO, Mark Gordon. “The discussion paper and sample investor questionnaire are a continuation of our efforts to provide practical guidance and tools to members to further improve the advisory process for the benefit of investors and financial advisors.”