Conclusion

The NAAF is an important, albeit imperfect, document so think carefully of the consequences before filling in the blocks and making the tickmarks. The NAAF form has many shortcomings and investors should augment the information to communicate a more robust characterization of financial needs and loss/risk tolerance for each investment objective. An IPS is one such tool. Investors should ask themselves a key question: “How much of my portfolio’s value can I lose before I’d start worrying.”

It is essential to update forms if your personal situation changes. In the event of retirement, loss of job, divorce, receiving a large inheritance, death of a spouse or similar changes, make sure your advisor is notified in writing and that a new account form is prepared and signed.

A number of books have been written highlighting investor protection in broker and fund dealer relationships –one by Robert Goldin INVESTOR BEWARE: Protect your investments from Broker Misconduct(Don’t retire in poverty) is a particularly fascinating read. John DeGoey’s excellent book THE PROFESSIONAL Financial Advisor is one of the best summaries of client-advisor relationship issues. John Reynold’s classic The NAKED INVESTOR, provides an articulate exposé of investor abuse in Canada and its devastating effect on people’s lives.

For those investors who want a detailed commentary on the shortcomings of KYC because of the industry transaction-based mindset take a read of the TAMRIS Special Report onSuitability, Minimum Standards & Fiduciary Duty in the Canadian Financial Services Industry available at www.moneymanagedproperly.com/New_Folder/technical.htm The document argues that the “Know Your Client” form cannot safeguard the suitability of a transaction because it cannot effectively relate the transaction to financial needs, existing investments, risk preferences or current risk/return relationships.

Many low cost opportunities exist for the financial services industry to do much better. For instance, forms prepared in electronic format, can be “intelligent “by harnessing the power of the computer to check for completeness (no missing block entries), highlight disconnects (a retiree saying he’s on fixed income yet choosing 40 % speculation) and provide real-time education (by providing definitions of terms or providing cautions by clicking on key words). Another idea is to have programs that link financial plans, NAAF’s and Client Statements (actual account holdings) together to validate congruency. The improvement opportunities are limited only by the imagination and determination of the industry to protect and satisfy clients.