Know your client (KYC) requirements are often viewed through a regulatory lens. After all, KYC’s core ideas about understanding clients’ unique needs and protecting investor interests emerged in the post-Great Depression era. As such, it’s treated as an obligation.

It has prescribed areas of focus, including time horizons, objectives, knowledge, age, marital status, etc. And it comes with the threat of punitive consequences should an advisor fail to follow the process. Advisors must obtain specific information about their clients to inform product and service recommendations while upholding prescribed rules and regulations.

KYC is a critical component in today’s wealth management business due to its crucial and highly interconnected role in informing professional judgment for product and service suitability and client relationship management. What it misses though, is the day-to-day realities of a client’s life where biases live and can be controlled. 

We’ve long known that clients’ emotions impact their decision-making. Behavioural finance tells us that your clients’ biases, behaviours or beliefs can be costly. Advisors have biases too, which can impact client outcomes. For example, research shows they tend to believe the people they serve are more like them than they are. That impacts how they communicate with clients, recommendations they make and more.

Biases impact both sides of the advisor-client relationship. And none of that shows up on a KYC form.

Few financial advisors have cultivated the skills required to fully build behavioural finance best practices into the experiences they deliver clients. It starts with recognizing that clients’ emotional responses to money, life and decision-making are unique and context-dependent.

Today’s financial advisors need to shift from a form-driven relationship to one that meets their clients where they are at in life, a little like therapists do. Stop asking questions to fill in forms. Talk to clients about their life, their money and what they want from it.

Engaging with your client’s emotional responses differently will result in a better understanding of their circumstances, which helps mitigate negative biased responses while achieving a holistic understanding of clients needs, realities and objectives. It is this shift that will help advisors achieve the much-needed step-change to elevate their value proposition.

That means being a better listener, being more intuitive to client signals — both verbal and nonverbal — and establishing relationships with mental health professionals that you can bring in the same way you call on lawyers and accountants. This demands a range of soft skills and personal awareness that leading advisors are working hard to develop.

It’s more than just understanding client biases. When talking with clients, identify impending issues or events that — given what you know about the client — have a high likelihood of contributing to adverse financial decision-making down the road.

Wealth management is a relationship business first, and a money business second. Without strong relationships built on trust, financial advisors can’t be successful. As people turn to social media and AI for financial advice and education, the advisor value proposition needs to lean into the humanity of money and the engagement of clients through meaningful conversation.

The KYC form represents data and fixed points, which don’t reflect the person. There’s more to your client than that.

Next-level financial advice comes with the respectful exploration of the very human nuances that exist between the checkboxes. Really knowing your client means understanding the contextual pieces that drive your client’s decisions.