Client Discovery and Account Opening

Client Discovery and Account Opening

• Client discovery involves getting to know a client through questions and open communication.
• Information gathered during client discovery forms the basis for all future securities recommendations.

Opening Accounts and RR Responsibilities

• Registered Representatives (RRs) are responsible to both their clients and the dealer member.
• RRs must meet high standards of integrity.
• An RR must update client information continuously and provide cautionary advice if a client places an unsuitable order.
• The Know Your Client (KYC) rule mandates learning essential facts about every client, order, and account.
• Compliance to KYC ensures collection of sufficient client information.

Factors for Trade Suitability

• Age, marital status, and occupation
• Income and net worth
• Number of dependents
• Risk profile
• Investment objectives and time horizon
• Investment knowledge and experience
• Portfolio composition, duration, and risk level

Information Gathering Techniques

• Document client's lifestyle responses.
• Require in-person meetings and regular information updates
• Encourage a trusted family member to join meetings.

Combating Money Laundering

• RRs play a critical role in detecting and combating money laundering and terrorist financing.
• Failure to meet reporting responsibilities under the Proceeds of Crime (Money Laundering) and Terrorist Financing Act (PCMLTFA) can result in a prison term of up to five years and a fine of up to $2,000,000.
• Anti-money laundering (AML) and anti-terrorist financing (ATF) are part of the KYC obligations.
• Canadian Investment Regulatory Organization (CIRO) sets the rules for account opening procedures involving essential customer facts.

Account Opening Procedures

• Procedures include risk assessment of clients.
• Consider their income source.
• Assess activity in the accounts.
• Determine the need for extra customer information.
• Determine if accounts such as offshore accounts, need additional monitoring and due diligence.
• Red flags during client discovery may indicate money laundering or terrorist financing.
• Actions should be taken once the red flags are reported.

Account Opening “Red Flags”

• Reluctance to provide information.
• Altered or counterfeit documentation
• Photocopies of documents
• Account opening in other people's names
• Vague information
• Out of service address
• PO Box, general delivery and other temporary address
• Non-reachable client over the phone
• Inquiries to avoid reporting
• Reluctance to complete or supply required documentation
• Inquisitiveness about compliance and anti-money laundering procedures
• Attempts to use aliases and different names to open the accounts

General AML Due Diligence

• Use more due diligence for clients from bank secrecy jurisdictions or countries that have high levels of corruption.
• Provide extra information and necessary documents about corporations and private offshore entities.

Heightened Attention to Specific Clients

• Clients dealing with cash.
• Clients in the position of public trust.
• Clients with suspicious transactions.
• Politically Exposed Persons (PEPs), their family, and close associates, are a concern
• Foreign PEP accounts are generally a bigger concern
• Foreign PEPs includes person holding an office on behalf of a foreign state

Anti-Money Laundering Regulations

• Verify identity and DOB of person opening a security account
• Verification must established before any transactions
• Verify identity to give instructions in an account

Account Updates and Reviews

• High-risk accounts need regular reviews for significant profile changes.
• Non-individual accounts need consistent reviews to detect changes in the ownership structure.
• All clients need to update their profiles and investment objectives when anything significant changes.

Account Updates Should Occur With

• Increases in account assets
• Unusual patterns of transfers or deposits indicating money laundering
• FINTRAC suggests a two year review for updates
• More frequent updates on high risk accounts

AML Procedures for Corporate Accounts

• Identity needs to verified with PCMLTFA for private corporation or trust
• Beneficial owners need to be identified.
• Trustees, settlors, and known beneficiaries are all beneficial owners of a trust
• Owners with 25% or higher control are considered the beneficiaries
• If information is not attainable, this needs to documented
• Account needs to be restricted to liquidating trades until the information has been obtained

AML Procedures for Non-Resident Accounts

• Higher verification requirements for non resident accounts
• Members should be informed about registration requirements to conduct business in other countries
• Dealer member needs to determine foreign jurisdiction's AML issues or sanctions

Offshore Client Protocols

• Allow deal member to identify PEP accounts
• Verify personal holding company or personal investment corporation

Importance Note For Offshore Clients

• Offshore clients that are unwilling to provide detail are suspicious
• Local client opening offshore account needs to be checked
• Nature of the agreement and entity needs to be reviewed

AML Procedures for Institutional Accounts

• Dealer should manage AML/ATF for institutional clients and business
• Accounts are opened for clients that are known, traded in significant volume, regulated and held

Limited Contact Business Practices

• Dealers may not have direct contact with underlying beneficiaries of their institutional clients
• CIRO regulations requires dealer to perform supervisory reviews to detect suspect transactions.

Personal Identity Documents

• Dealer should develop policies on opening accounts via the internet and using electronic signatures
• Regulations by PCMLTFA needs to be followed
• Original personal identification documents must be reviewed to verify applicant identity
• photocopies, scanned copies, or other reproductions are not usable for verification purposes.

Account Application

• Account application should be on paper or electronic format
• Application starts client, dealer member relationship
• Application is a services contract
• RR executes the application via listed items

Account Applications Must Include

• Client identity (full name, address, citizenship, social insurance number).
• Clients personal information which is marital status, # of dependents, and employment.
• Net worth, and liquidity Clients personal financial information
• Clients investment objectives, risk profile, investing knowledge.
• Clients relationship with publicly traded companies.
• Account application fields can include notes of material issues which is then used in the opening

Supplemental Client File Information

• Notes are taken in client discovery process
• Discovery questionnaire
• Form must be approved by the designated supervisor
• Legal relationship between client and member is needed
• Identity of client is established
• Information is sufficient in order to meet obligations
• Clients creditworthiness is judged

Significant Changes for Account Updates

• Account Name
• Address
• Marital/Employment Status
• Taking financial interest to gain control
• Trading Authorization
• Financial Circumstances
• Investment Objective
• Insider Trading Status

Compliance with Suitability Reviews

• Securities are received
• Individual is responsible

Leona, Jane Case Study

• Important to know the financial resources
• Need to know clients objectives, if the client is not within the parameters
• Document information, and know the profile of the client

Completing the Account Application

• Requires client information, account and registration information

Client Name

• Full legal name should be provided by all parties

Confidential Accounts

• Member can maintain accounts utilizing a #, nominee name, or other symbol
• Must keep this information accessible so the beneficial owner info or entity can be identified
• The regulators can access this information

Home Address

• Need both residence and business addresses for AML/ATF
• Used for securities regulations
• RR must be registered in that province
• Dealer needs address for communications

Addresses Should Be Treated With Caution

• If there is no permanent address
• Make a judgement, as the client could be trying to avoid making payment
• The compliance and supervisory departments must be enforcing policy

Social Insurance Number

• Required for tax reporting
• Speak branch supervisor if client does not want to disclose the number

Date Of Birth

• Crucial for registered accounts, so deregistration can be prevented
• Calendar year is recorded, and care is needed for elderly clients and minors

Minors

• avoid opening because contracts by minors may be repudiated after they are of legal age.
• Cannot vote if they own voting shares
• Minors cannot designate beneficiaries for RRSP
• Check new accounts and compliance to see what documentation is required

Citizenship

• Only Canadian citizens can buy shares of companies within Canada
• Broadcast and banking is included, so must know clients citizenship

Non Resident

• Non resident need extra ID verification
• Requires a passport
• Politician will have special accommodations

Client Citizenship

• Used for tax reporting
• Needed for three reasons
• Important for credit
• Important to see any issues
• Clients ability to handle possible investment objectives is needed

Self Employed Clients

• Requires pay attention to the financial information for credit

Marital Status

• Legal and financial impact
• Need to verify certain information

Marital Status Information

• Three purposes
• Helps creditworthiness
• Investment objectives verified are overall
• Check spouse's and if any insider status exists

Spousal Situations

• Verify commitment
• What influence it will have towards his and her potential liability
• Consult supervisor for proper procedure if issue

Financial Information

• Judge creditworthiness if credit is expected

Annual Income and Total Net Worth

• Total net worth is sum of all (secured/unsecured) less all liabilities
• Fix assets includes real estate and business assess.
• Liquid assets are assets that can become cash such as registered and non registered accounts.
• Be clear with how much is owned when providing assest

Single Combined Income

• Figure is needed and if whether its composed of employment, investment, or other source.
• Know source of funds, to meet AML/ATF requirements

Level of Knowledge

• See how much guidance can be given

Help Determine clients level

• Need to ask questions
• Help to discover if knowledge and excellent

How Make Sense in the context of Account Application

• If client has low investment knowledge may not be eligible for high risk objective
• Follow application to consider what is in harmony and questions

Financial Objectives

• Discern your client plans for $
• Allocate funds to be safe, for growth and income
• Determine their tolerances
• Tolerance = Willing
• The total investment horizons need to be considered

What To Determine Clients Profile

• Range of values, what is the highest value you hope for and the lowest you are willing to accept for your portfolio in X years?
• How would you react to a decline in market value?
• What portion of your total net worth does this account represent?
• How much could you afford to lose?

Account Types

• Determined exactly what is suitable for each client
• Important to determine which trading investments
• Several considerations to the investments to the different types of investment
• Multiple accounts and limits in multiple types

Cash Accounts

• In order for the purchased transaction must deposit payment in entirety
• Sales securities need to be delivered
• Cash accounts, must be operated with cash account rule that exists

Margin Accounts

• Requires purchase only partial payment of purchase
• Loan with dealer member and prevailing interest rates.
• Must deposit for specific portion securities called client margin
• Varies based on security or price.
• Agreement called the margin agreement must be completed

Short Sales

• Accounts use for short sales

Delivery Against Payment

• Account involve securities and the settlement
• Dealer members delivers securities to the settlement purchaser and agent
• Subject to the cash account rule

Receipt Against Payment RAP Account

• Except with the clients selling to the dealer member

Cash On Delivery

• Norm for accounts

Registered Accounts

• Registered with the Canada Revenue Agency (CRA) and tax deferral
• RRSP and RIFs are under umbrella
• Aware of the restrictions allowed
• Must also learn consequences, securities and funds from in and out

Pro Accounts

• Employment and family for a member employee
• Cannot be a client ###Investment Club Accounts
• When setting an investment club account, an investment club account must accompany the standard client application
• With the names, addresses, all members need to sign and be authorized for giving administrative information

Rules For Handling Investment Clubs

• Can’t be the authorized to give, unless as a type account
• Be sent out on the dealer or independent member

Discretionary Accounts

• The dealer member must use authority, elect securities and execute client behalf for client to make their orders.
• Clients reasons needs to clear
• If the client is illness or needs to away
• RR will be in charge of the account. unless account is maintained
• Account is valid for 12 months
• Designated supervisor needs to authorize, accept it by writing
• Client and dealer both need to sing a discretionary account which involves restrictions

Discretionary Accounts Rules

• It must be marked as such at entry
• CiRO Can make trades for customer
• No accounts with holding in it securities
• Registered representatives, must have accounts to have 2 or more to be traded
• Any time a client is clear has not been mentioned
• Supervisors who initiate orders need to reviewed RR

Discretionary Order

• Must be reviewed
• Be reviewed in that month to properly make reviews for those account
• Be identified with the account that is discretionary
• The client can terminate the agreement after 30 days of the term

Managed Accounts

• The investment positions is in third party hands
• Can be granted with discretionary authority
• Must be approved within IDP rules and CIRO

Power Of Attorney

• Whether you want to provide contact information, POA with the clients wishes
• Member can abuses as the processes are implemented.
• Identify the investor
• That the signature has been received and determine authenticity

Banking Information

• Used the information for persons under ACT
• Check clients and provide info for the new and the credit