Make responsible investing part of KYC, suitability, RIA says

By Staff | August 19, 2021 | Last updated on August 19, 2021
2 min read
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As the client-focused reforms are implemented this year, the Responsible Investment Association (RIA) wants advisors and firms to make responsible investing concepts part of know-your-client (KYC) and suitability processes.

In submissions this week to the Mutual Fund Dealers Association of Canada and the Investment Industry Regulatory Organization of Canada, the RIA suggested revisions to the regulators’ proposed amendments related to the client-focused reforms.

Specifically, the association suggested amendments related to a client’s investment objectives should include “investing in accordance with environmental, social and governance (ESG) criteria or other personal preferences.”

Also, client discussions about investment needs and objectives should include “investing in accordance with their personal values,” the RIA said.

In support of its suggestions, the association cited its 2020 Ipsos poll that indicated 72% of respondents were interested in responsible investments that aligned with their values.

That poll also found that, while 75% of respondents indicated they would like their financial advisor or financial institution to talk to them about responsible investments, only 28% of respondents said their advisor or institution had done so.

“Clearly, there is a significant disconnect between what investors are seeking with respect to RI [responsible investing] and ESG-focused products and the information that their financial services providers are providing,” the RIA said in its submission. “In our view, this is a gap that the proposed amendments can, and should, help to bridge.”

Further, investors may need help articulating their investment needs and objectives, as the regulators noted in the proposed amendments, and this should apply to responsible investing, the RIA said.

“If a client is interested in responsible investing and cannot articulate this objective, and if the registrant does not know about this objective and/or does not inquire about it, it cannot be said that a registrant knows their client well enough to make suitable investment recommendations,” the submission said.

As such, proposed amendments should include consideration of a client’s desire to, for example, invest in ESG-focused mutual funds or avoid exposure to certain industries, it said.

The RIA also cited jurisdictions that have integrated responsible investing concepts into KYC and suitability. For example, the Australian Securities and Investment Commission provides advisors with guidance about considering a client’s attitude to ESG factors as part of advisors’ best interest duty.

That guidance doesn’t create an obligation for advisors to enquire about a client’s responsible investing preferences, and nor do the RIA’s suggestions.

The association said its suggestions “encourage registrants to consider that their clients may have investment objectives that focus on personal preferences, and that they should seek to gain an understanding of these preferences.”

The comment period for the proposed amendments ends on Friday. staff


The staff of have been covering news for financial advisors since 1998.