Your client, Cosmo, recently inherited $50,000 from his uncle. He wants to use this money towards his retirement savings. Cosmo is a 50-year old, self-employed carpenter and he earns on average $65,000 per year. He has a registered retirement savings plan (RRSP) with the bank worth $425,000 and a tax-free savings account (TFSA) worth $46,000. He started saving when he was 25 years old and has always made his own investment decisions. His money is mostly invested in balanced funds. He feels most comfortable with these types of mutual funds since they offer potential investment growth but without being too aggressive. Cosmo has no other assets.
What additional information do you need about Cosmo to fulfill your know your client obligation?
Correct Answer: C
Explanation
To fulfill the know your client (KYC) obligation, an advisor must collect and document information about the client's personal and financial situation, investment objectives, risk tolerance, and investment knowledge. The KYC rule is a regulatory requirement that ensures that the advisor understands the client's needs and goals, and provides suitable recommendations that match the client's profile. In this case, Cosmo has provided some information about his personal and financial situation, such as his age, occupation, income, assets, and inheritance. He has also given some indication of his investment objectives, such as saving for retirement, and his investment knowledge, such as making his own investment decisions and preferring balanced funds.
However, he has not disclosed his risk tolerance, which is his willingness and ability to accept fluctuations in the value of his investments. Risk tolerance is an important factor that affects the choice of investment strategies and products. Therefore, to complete the KYC process, the advisor needs to obtain additional information about Cosmo's risk tolerance. References:
Canadian Investment Funds Course (CIFC) Study Guide, Chapter 1: The Investment Funds Industry, Section 1.4: The Know Your Client (KYC) Rule, page 1-111 Know Your Client (KYC) Definition - Investopedia2
