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Why do financial advisers need so much personal information?

Why do financial advisers need so much personal information?

10 March 2023

In a progressively data-driven climate, we’re constantly reminded of the threat of cybercrime and made aware of the dangers of sharing personal information with third parties. So, divulging the intimate details of our daily lives, from our bank account digits and tax information to marital status and our health records, with a stranger, albeit one that we’ve enlisted to help us manage our finances, can seem like we’re opening ourselves up to a world of problems. However, this level of due diligence is a reflection on a credible institution’s role in preventing financial crime and indicates that, in fact, with an experienced and professional financial adviser, your investments really are in safe hands.

Financial organisations of every size and shape are governed by a framework of rules enforced by financial regulators, including the Jersey Financial Services Commission (JFSC), to prevent fraud and maintain an efficient and transparent market. This framework means that financial advisers have a legal obligation to undertake the necessary checks to ensure their clients are who they say they are and that their finances have been obtained through legal and legitimate means. This proof of identity and source of wealth is vital due diligence for combatting financial crime at both a local and global level. Proving that your funds have been obtained legally, for example, via inheritance or earnings, shows that you and your financial adviser are meeting the international standards of regulation relating to Anti-Money Laundering (AML) and Combatting the Financing of Terrorism (CFT).

Failing to comply with these regulations is a criminal offence and can have drastic consequences for your adviser; in addition to landing heavy fines, the reputational risk for the firm and wider jurisdiction is enormous, and they could be barred from the industry entirely. It’s bad news for them, but the implications can be just as severe for you as a consumer. By failing to apply a transparent approach and undertake the necessary due diligence, your adviser leaves your investments vulnerable to broader fraudulent operations, such as ‘Ponzi schemes’. Once your funds are added to these schemes, they become pooled assets and in the event of police intervention, it can take years, or even decades, to retrieve your money. The Bernie Madoff Ponzi scheme, the largest scheme in history and worth a staggering $64.8 billion, collapsed in 2008 and is still being unravelled today!

The good news is that with such a rigorous regulatory framework in place, the most experienced and professional advisers are committed to applying best practise to every client they work with and are focused on obtaining the most successful outcome for your investments while minimising any risks. It’s a relationship based on mutual trust and transparency, so while due diligence checks may seem intrusive at the time, in reality, your adviser is gathering this data to gain a comprehensive picture of you, your lifestyle and family obligations and how your investments can best meet these needs. For example, if you plan on starting a family, the number of children you have will help dictate how hard your money needs to work to pay for them. Similarly, it’s not uncommon to be asked about your family’s health status so your adviser can get an idea of any medical expenses you may need to meet in the future or early retirement that will affect your earnings. By collecting this valuable information at the start of the relationship, they will have an ongoing understanding of your goals and financial approach in order to provide a bespoke service tailored specifically to you.

As with any healthy relationship, it’s always a good idea to enter into the partnership with a clear idea of what your own financial goals might look like, so you can work towards them together. For example, do you have a particular event that you are working towards, such as buying a house, paying for a wedding or funding university fees? Do you have any outstanding debts or bills that need paying, and how long can you invest your money for? Your adviser will also be interested in your attitude to risk, or capacity for loss, which will determine how your money is invested. Higher-risk investments can create a greater return, but lower-risk investments are often a safer option if you prefer a more cautious approach with your money. As trained professionals, the best advisers are up to speed with the latest policies and regulations, so with the right information and a clear view of your personal circumstances, they can make the best match for your money for optimum returns both now and into the future.

Planning for your financial future has never been more important. However, enlisting the right professional expertise and forging a partnership based on mutual trust and transparency can make that climb up the mountain feel less daunting, so you can look forward to enjoying the views when you get to the top.

Redwood Group is a leading Channel Islands compliance and governance specialist working with clients across Guernsey and Jersey

If you’ve ever enlisted the help of a financial adviser, you may have felt that submitting vast quantities of personal information was a little like climbing a mountain; exhausting, seemingly relentless and fairly painful. However, while it can seem intrusive, sharing your personal data is vital for increasingly important reasons, and the good news is that, once you reach that mountain peak, it can deliver long-term financial rewards that make it worth the climb. Matthew Journeaux, Managing Director at Redwood Group, explains why.

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