Dubai: KYC means "know your client". It has different nuances depending on whom you speak to.

At the basic level, most regulators will take KYC as the process of establishing the source of the client money for anti-money laundering (AML) issues.

Has the distributor/investment house checked that the track of the money is NOT connected to criminal activity?

Investment houses follow this thinking to demonstrate the checking process. At a higher level, professional bodies and the top advisory firms, having checked the AML procedures, will also seek to "know" their client by way of deep analysis into their present position and future needs.

So what characteristics do you want from your fin-ancial adviser? A perennial yet interesting question as the nature of the answer changes as the depth of investor awareness increases. According to the latest edition of the Cap Gemini World Wealth Report, high net worth individuals (those with over $1 million [Dh3.67 milion] investible assets) are turning once again to financial advisers as a distrust of anything to do with government systems increases.

Need for information

The one-word answer "trust" has not changed. However, how to earn trust is clearly changing. This week's space picks up on one obvious tool to help the moneyed classes: the "fact find". The "fact find" or confidential client profile (or "whatever") is the name of the paper-work completed in the first client/adviser meeting.

At the "high" (strategic) level, the fact find has at least three values

Firstly, advisers can't provide advice in a vacuum. They need information. Doctors ask "where does it hurt" to help them on their analytical path.

Beware the six-page fact find. This is the tool of the salesman. The salesman's aim is to get through the paperwork as soon as possible. The salesman operates on a numbers game; long fact-finds are an obstruction to selling. A ‘proper' fact find would involve some discomfort to the patient as they change into hospital clothes for strangers to take X-rays of their "innards".

Secondly, the fact find needs to provide an in-depth view of a clients' present position and future needs. This information disperses the vacuum.

Thirdly, the difference between the really good financial adviser and the others: the fact find should also seek out how the investor "feels" about managing the present position and future resources into where they wish to be. "It's the journey that counts, not the destination" as Mother Teresa would say.

So what should we expect to see in a "professional fact find". I suggest seven aspects provide a "basic" examination, at an average of two pages per aspect, it's difficult to see how it can be achieved in anything less than 15 pages. Twenty pages plus is more normal.

Personal details

The aspects should include personal details. After all, age and time are important investment factors. Within these questions, issue two, base currency, arises. If one Indian rupee buys one Indian "rupee" worth of goods and services, why would (say) the returning Indian plan his retirement in Aussie dollars? A base currency is the currency of end use. More investment money is "lost" on currency than any other asset. You have got to get this right.

Thirdly, you would expect to see a balance sheet and income/expenditure statement. The expert will attack the balance sheet to understand its liquidity into short, medium- and long-term components.

Fourthly, if financial planning is about ensuring that you have money whether you die early, or die late, then the separation of protection from investment components is important.

Issue five is all about "the journey". Perhaps the area that more clearly separates the professional from the salesman. What is the investors' experience level? Their tolerance to losses, or their attitude to risk? Matching assets to these responses is the hallmark of the professional.

Issue six is "future needs". Day trading your way into a retirement plan? Statistics do not give you much hope. The alternative to timing every market is to plan towards medium- and long-term goals.

Issue seven leaves the summary. An action plan. The next test then lies in "the execution".

 

The writer is Chairman of Mondial Financial Partners.