senior couple sitting at table with financial advisor

Although there may be clients who fit into a mold based on their age, don’t make assumptions when meeting clients. Instead, explore facts surrounding the clients. Who are they? What are their values? What are their immediate, intermediate and long-term needs and goals?

Regulators assume that a client’s age may dictate both time horizon and risk tolerance. This could be the case for elderly clients who rely on their own capital to support themselves for the balance of their lifetimes. However, this is a small subset of all clients, of all ages, and even of elderly clients — especially high net-worth clients. Generalizations about age can be dangerous. Facts surrounding the age of any client are more important than just the age of the client, taken in a vacuum.

For example, you could be meeting a young couple and assume they want to save for a house and family, or you could be meeting with a single person and make assumptions that he or she wants to travel and enjoy being single. However, you could be totally wrong on both counts. Rather, the situation could easily be the reverse: the couple wants to travel while the single person wants to save for an eventual family. There are no rules that dictate that by certain ages, you must be thinking or planning for certain milestones. With those assumptions, an advisor might fail to explore what the clients actually want for themselves in the future.

This is equally true for elderly people. You might examine an elderly client’s assets and worry that the capital must be preserved to ensure the client has enough for their retirement. But what if the elderly client tells you that she has a generous pension, that she owns real estate that generates income and that she doesn’t have financial requirements from her account. Instead, the client intends to donate the money in her account to charity during her lifetime and after she passes away. You might be thinking that this example is atypical, but every client is potentially atypical. This is why it’s dangerous to make assumptions about risk tolerance based solely on age.

Although all of your clients’ dates of birth are required information for identification and anti-money laundering concerns on the “know-your-client” or new client application form, age also has become a focal point for regulators and, thus, dealers in the context of time horizon, risk tolerance and, by necessity, suitability of investments.

Of course, as you collect these important facts about your clients, you need to document the information they provide to you. This information will save you from a regulatory penalty and court judgement, as you will need to show that the account was suitable, based on the client’s needs and goals, at the time an investment was made if a client ever makes a complaint.

In fact, if a client chooses to make a complaint against you, he or she may believe that it would be better to tell the regulators that their intentions were more aligned with typical people of their age and stage of life. That’s why a paper trail is crucial to prove you knew your clients and that you formulated an investment plan that was consistent with their specific goals.

So, even though obtaining the date of birth of all clients is mandatory, don’t rely exclusively on their age to dictate their needs and goals and, subsequently, their investment strategy. Document what they tell you and ensure that you align the investments with their actual personal needs, goals and risk profiles, incorporating anything relevant about their age and stage of life.