Know Your Client Rule Has No Age
by Ellen Bessner
Originally published in the National Post on July 9, 2007.
Convincing advisors of value beyond their regulatory duty to know their clients is a hard
sell! I try to entice them, asserting they will obtain a bigger portion of their existing
clients' investable assets if they understand their clients' needs at every stage of their
relationship.
However, recently, an advisor challenged me: "Why would I update KYCs for my clients
-- they don't change, they are old?" he asked. In his case, enticement would not work.
Being a litigation lawyer, I leaped into destroy and conquer mode. "How can you
possibly assert that old people don't change," I retorted. "People are living much longer
and it is the advisors' job to keep up with the many changes clients experience through
their golden years.
"And, how old is old? Is it 60? 65? 70? 75? Statistics Canada provides that the average
Canadian man and woman live to age 77.8 and 82.6, respectively. If you take the
position that old clients don't change, how old is a client when their financial needs stop
changing?" I may have come on a bit too strong. As a result, this article goes beyond
enticement or bullying, and uses reason, instead.
If the assumption is clients don't change after their earning years, what age is that? 60,
65? Such an assumption ignores the fact many people continue to work well into their
sixties. In fact, many people are having children later in life or have second families (or
third or fourth), and have teenagers or children in high school or university when they
are in their sixties, so their financial situation and obligations continue to change.
While some continue to work because they have no choice, others do so because they
enjoy it. With mandatory retirement gone in Ontario, Prince Edward Island, Alberta and
Manitoba and other provinces set to follow (Saskatchewan, British Columbia and Nova
Scotia), people are working well past 65 and even 70.
If old is 70, many people choose to "semi-retire" and continue working, part or full-time
well into their seventies, particularly if they have good health. For those who do not
continue working, their spending may be on the rise as they begin to enjoy expensive
travel or hobbies. These clients need advice to help them budget and adjust to
retirement.
Many seniors may suffer ill health. Their financial needs are also changing. As their
medical conditions change, they may require expensive medication, therapies, delivery
services, or around-the-clock care.
So what type of advice does the ageing population need? Here are some
considerations:
-2Encourage saving for a rainy day. Clients of all ages need to ensure they have funds
put aside for medical or other emergencies. While advisors, particularly fee-based
advisors, may be accused of keeping too much of their clients' money in cash it is
important to discuss and document how much liquidity is required in each client's
portfolio.
Identify how much they can afford to spend when that day comes. Some seniors are
scared to spend their money whether it's a rainy day or not. They are paranoid about
running out of money so they stay home and spend nothing. Ultimately, they are
wasting their lives. These clients would benefit from a thorough analysis of how much
money they can spend. Furthermore, if their health is taking a turn for the worse, they
may be worried about spending money on support and assistance which can be costly.
The advisor may need to help clients identify when the rainy day has arrived.
Ensure a power of attorney has been signed. While the topic of growing old is sensitive,
it is crucial for the advisor to have a copy (or better, an original) of each client's power of
attorney or, at least, written permission from the client to speak to the lawyer who has
the original power of attorney. This is not just relevant for seniors but for all clients.
Accidents and debilitating diseases can strike anytime. These simple measures would
avoid big problems for the dealer and the advisor down the road.
Ensure all references to beneficiaries are up-to-date. The beneficiary generally is
designated when the account is opened but clients and their relationships change over
time, even for seniors; they get married, divorced, their children get married and
divorced and this may affect the beneficiary designation.
Ensure medical, disability or life insurance has been purchased. If the advisor is
licensed to sell insurance products, discussions to ensure these products have been
offered should be documented so there is a paper trail proving the client was offered the
appropriate insurance and declined.
To know your clients is not an obligation that ends at retirement. It is important for
advisors to understand the changes elderly clients will experience, and help them plan
accordingly. This approach enables advisors to do what they are mandated to do: Know
their clients and help them with their changing financial needs. It is the best way to build
a successful business and manage regulatory and legal risk.