client-questions

We can all agree that KYC is important. But many of you may be surprised to hear that many of your KYCs are vastly inaccurate, at least in one place.

That's not because you aren't doing what you've been taught to do, but because you aren't doing what you haven't been taught to do.

I'm talking about the liabilities portion of the KYC.

Read: Canadians in denial on lasting debt

You may be thinking, "My KYCs are accurate. I ask questions and record the information in detail." And I wouldn't doubt that for a second.  But there are common reasons you aren't getting the information you are required to submit.

Just think about your book of business:

  1. Do the majority of your clients earn more than $100,000 in household income?
  2. Are the majority of your clients well educated?
  3. Do many of your clients put money away regularly, or pay for quality insurance products?

Read: Canadians squeezed by rising debt, dependants

If you answered yes to any of those questions, the likelihood of debt in your practice is high. So let's do math:

A: number of your clients who are retired

B: number of your clients who are not retired

A x 0.59 = The number of clients in your practice who are likely retired with debt (you may extract households who are extremely wealthy).

B x 0.76 = The number of clients in your practice who are not retired and likely carrying debt.

Read: Who manages your household debt?

Are those numbers what you expected? Do your KYC forms accurately reflect those clients' liabilities?

Here are more things you need to know before you can answer that question:

  • Nearly 60% of the debt Canadians are retiring with is made up of credit cards and lines of credit.
  • Clients are highly unlikely to tell you about credit card or line-of-credit debt.
  • Unless you look at your clients' most updated credit scores, you can't be sure what debt they truly have.

Read: Americans pay down debt

Here are some things you can do to improve your KYC accuracy:

  • Educate yourself on debt and credit
  • Talk about debt up front with every client
  • Ask your clients to get their credit scores online, print the report and bring it to review appointments. Their credit is part of their financial wellbeing and knowing the status should be part of your process
  • Have clients who don't want to talk to you about their credit or debt sign off on that fact

I'd ask your compliance department what to do with clients who'd prefer to keep their debt to themselves. You may want to avoid clients who don't want to be transparent enough for you to give them the best advice.

Stephanie Holmes-Winton is a Halifax based financial services educator/speaker who helps advisors find the money to help their clients fund their financial plans. She is the author of Defusing The Debt Bomb & $pent. Stephanie is also the founder and board chair of the Certified Cash Flow Specialist™ designation program. You can reach Stephanie at sholmes@themoneyfinder.ca or themoneyfinder.ca
Originally published on Advisor.ca

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