Editorial: Planner paper trail widens

How well do you know your client?

By that I don’t mean how well you are acquainted with their investment profile. Rather, I mean how familiar are you with their identity beyond the normal adviser/customer relationship and how well do you understand their various sources of income?

While many planners have long-standing and almost personal relationships with their clients, there are many more who know vastly less about who, precisely, they are dealing with. This may ultimately give rise to concerns in dealing with the requirements of the Anti Money Laundering/Counter Terrorism Financing legislation.

Planners would therefore be well advised to closely read the regulatory requirements attaching to the AML/ CTF legislation to ensure they fully understand their obligations.

In particular, planners should ensure they are familiar with those elements dealing with knowing your client (KYC). Why? Because the KYC requirements are clear-cut and unavoidable.

What is more, advisers need to understand that the KYC requirements do not end at the door of their offices.

When advisers undertake investments on behalf of their clients they need to understand that those running the destination investment will be relying on the information collected by the adviser.

Superannuation funds, for instance, will want to be assured that the referring adviser has undertaken the appropriate due diligence where KYC is concerned.

On the face of it, complying with the KYC requirements is not particularly arduous. It simply requires that advisers and institutions sight documentation or data sufficient to validate the identity of the client.

Of course, if the client is deemed to fall into a higher AML/CTF risk category, then the quality of the verification will need to be somewhat higher.

But the bottom line is that the new AML/CTF requirements stand to add substantially to the paperwork undertaken within planning practices and dealer groups.

However, in a very real sense, the level of identification that planners will be requiring of their clients is no more than is required to establish a bank account in Australia and, sensibly, this level of information should normally be gathered by reputable planning firms as a matter of course. The difference lies in the obligation.

The AML/CTF legislation not only imposes a whole new range of obligations and paperwork on the financial planning industry, it also brings into question the interplay of other Commonwealth laws, not least the Privacy Act.

Clearly, there is a need for planners to be well-informed and well-prepared.

— Mike Taylor