A financial advisor is obligated to conduct a rigorous investigation of your circumstances known as the “Know Your Client Process” (”KYC Process”). This may be summarized in a form (in the mutual fund and stock worlds), but the KYC Process is not merely a form. It is much broader and deeper than that. A KYC Process should include an explanation of the terminology used by the financial advisor in completing all forms signed by the client. The KYC Process should include an explicit and written investigation into a client’s risk tolerance (ex. “if your investment in X were to decline 20% in 3 months, would you be willing to wait out the possibility of the value recovering or would you sell your investment?”).
