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CPH
®
Study Guide
Chapter 1: Canadian Securities Industry
Registrant Code of Ethics and Standards of Conduct
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Section 1 (The Regulatory Environment), Chapter 1
1.1 CANADIAN SECURITIES INDUSTRY
REGISTRANT CODE OF ETHICS AND STANDARDS
OF CONDUCT
The Know Your Client Rule
One way of integrating ethics into the rules is through the suitability of investment
recommendations for a client.
Suitability
means ensuring all recommendations:
•
Take into account the client's unique circumstances and investment objectives.
•
Are based on the advisor's understanding of the client's personal and financial
situation, as well as knowledge of the various available investment options.
The
"Know Your Client" (KYC) Rule states
that the advisor must use due diligence to
learn the essential facts relevant to every client and every order. This must be done each
time:
1.
A trade is accepted.
2.
A recommendation is made by the brokerage.
3.
Securities are transferred to the brokerage.
4.
A different representative is taking over the account.
5.
A material change in the KYC information for the account takes place.
To do this, you must know the client's:
•
Personal circumstances (e.g. investment knowledge, risk tolerance).
•
Financial situation, such as net worth, income, and savings.
•
Investment objectives.
•
Age and time horizon.