Client Data Gathering

Gathering accurate, complete client information is the foundation of the advisory relationship. Before making any recommendation, the adviser must collect sufficient data to understand the client's identity, financial situation, and investment needs.

What Does the Customer Identification Program (CIP) Require?

Covered financial institutions, such as broker-dealers and banks, must follow anti-money laundering (AML) Customer Identification Program (CIP) rules. A proposed adviser CIP rule does not create a universal current federal CIP requirement for standalone investment advisers. Where CIP applies, minimum identification for natural persons is:

1. Name
2. Date of birth
3. Address
4. Government-issued ID number (Social Security Number or TIN)

For entities: formation documents, EIN, authorized signers.

Think of it this way: CIP answers "Who are you?" (identity). The full suitability profile answers "What do you need?" (financial picture). Advisers still collect identifying information as part of opening an account, but the CIP rule itself is a covered-institution obligation, not a universal standalone-adviser requirement.

Exam Tip: Gotchas

• CIP is an AML identity check, not a suitability profile. Candidates sometimes answer "collect date of birth and address" when asked about suitability; that is CIP. Suitability requires the full financial picture (net worth, income, goals, risk tolerance) on top of identity information.
• Do not assume CIP is a current universal federal rule for standalone investment advisers. It is a firm obligation for covered financial institutions like broker-dealers and banks. A rule extending it to standalone advisers has been proposed but has not taken universal current effect.

What Do Questionnaires Cover?

• Standardized forms covering financial situation, goals, risk tolerance, time horizon, and experience
• Advantages: consistent, documented, efficient for compliance
• Limitations: clients may not understand questions; responses may not reflect actual behavior under stress

Why Do Interviews Matter?

• In-person or virtual conversations to explore nuances that questionnaires miss
• Allow the adviser to probe inconsistencies (e.g., a client who checks "aggressive" but describes fear of losing money)
• Best practice: combine questionnaires with interviews for a complete profile

What Is the Investment Policy Statement?

A written document formalizing the results of client profiling. The IPS is the governing document for the advisory relationship. Recommendations must align with it.

IPS components:

• Client objectives (return requirements, risk tolerance)
• Constraints (time horizon, liquidity needs, tax considerations, legal/regulatory, unique circumstances)
• Asset allocation guidelines and permissible ranges
• Rebalancing policy
• Benchmark selection
• Review schedule

The IPS should be reviewed and updated whenever the client's circumstances change materially.

Exam Tip: Gotchas

• The IPS is a living document, not a one-time exercise. On the exam, if a client's circumstances change (retirement, inheritance, divorce), the correct first step is to REVIEW AND UPDATE the IPS before making any portfolio changes.
• A recommendation can become unsuitable even if nothing about the investment changed. If a client experiences a major life event and the adviser fails to update the profile and reassess, continuing the prior recommendations is a suitability violation.

What Should You Check on Exam Day?

• CIP is a firm-level identity check required of covered financial institutions like broker-dealers and banks under AML rules, not a universal current federal requirement for standalone investment advisers.
• Minimum CIP identification: name, date of birth, address, and a government-issued ID number.
• Questionnaires give consistent, documented answers but may not reflect how a client actually behaves under stress; interviews catch inconsistencies questionnaires miss.
• The best practice is combining questionnaires with interviews for a complete profile.
• The IPS is the governing document for the advisory relationship; recommendations must align with it.
• After a material change in client circumstances, review and update the IPS before making any portfolio changes.