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Two layers of KYC
- Identity verification — legal name, date of birth, SSN/TIN, government ID. Required under Customer Identification Program (CIP) rules and AML requirements.
- Suitability fact-finding — financial situation, income, net worth, tax status, investment experience, objectives, risk tolerance, time horizon, liquidity needs.
What suitability fact-finding must capture
FINRA Rule 2111 (suitability) and the SEC's interpretation of fiduciary duty converge on the elements:
- Age, marital status, dependents.
- Income, expense base, employment situation.
- Net worth — including liquid and illiquid assets.
- Tax status.
- Investment objectives — growth, income, preservation, specific goals.
- Time horizon — for the portfolio overall and for individual goals.
- Liquidity needs — what cash flow does the client require?
- Risk tolerance — willingness and capacity.
- Investment experience — what products has the client held before?
- Other holdings — assets held outside the firm that affect the overall picture.
Keeping KYC current
KYC information goes stale. The client gets older, the spouse passes away, the income changes, the new house is bought, the inheritance arrives. A defensible practice refreshes the KYC information annually at minimum, with triggered updates on material life events. The refresh is documented and signed.
What examiners look for
- Complete profile fields, not blanks or generic placeholders.
- Date of last refresh — older than 12-18 months without explanation is flagged.
- Connection between KYC fields and the portfolio's actual holdings.
- Documented client-acknowledgment of any deviations from the profile.
How StratiFi thinks about KYC
KYC is not a form to fill once. It is a continuously refreshed picture of the client that anchors every recommendation. The firms that hold up under examination treat KYC as a discipline — annual reviews on a calendar, triggered updates on life events, every refresh documented and connected to the portfolio decisions that flow from it.
Frequently asked questions
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Is KYC the same as CIP?
CIP (Customer Identification Program) is the AML-focused identity verification piece. KYC is the broader suitability and relationship picture. Most firms run them together at onboarding. -
How often should KYC be refreshed?
At least annually, with triggered updates on material life events (retirement, divorce, inheritance, change in income, change in residence). Annual refresh is the floor, not the standard. -
Can a client refuse to provide KYC information?
A client can decline to provide certain information, but the advisor must document the decline and consider whether the firm has enough information to make suitable recommendations. In some cases the advisor may decline the engagement.