KYC, KYP, and Suitability

KYC, KYP, and suitability are central concepts for Canadian securities exams. They appear in both regulatory and product-based questions because they define how investment recommendations should be made.

Know Your Client

KYC means understanding the client. This can include investment objectives, risk tolerance, time horizon, financial circumstances, investment knowledge, liquidity needs, and personal constraints.

A recommendation cannot be suitable if the advisor does not understand the client.

Know Your Product

KYP means understanding the product before recommending it. This includes features, risks, costs, liquidity, complexity, expected performance drivers, and the type of client for whom the product may be appropriate.

A product may be legitimate and still be unsuitable for a specific client.

Suitability

Suitability is the connection between the client and the product. It asks whether a recommendation fits the client's needs and circumstances.

In exam questions, watch for mismatches. A high-risk product for a low-risk client, an illiquid investment for someone needing near-term cash, or a complex product for a client with limited investment knowledge may signal a suitability issue.

How to answer exam questions

When a question includes client facts and product facts, identify both sides before choosing an answer. Ask:

• What does the client need?
• What risks does the product create?
• Is there a conflict or missing disclosure?
• Is the recommendation consistent with the client's profile?

This approach helps with both CIRE and RSE questions.