What is Know Your Client (KYC) and Know Your Product (KYP) in fund sales?

• A. Know Your Client collects a client's investment preferences only.
• B. Know Your Client collects a client's financial situation and objectives; Know Your Product ensures the product aligns with the client's needs and risk tolerance.
• C. Know Your Client is optional.
• D. Know Your Product means you know the product's manufacturing origin.

Answer: (B)

Know Your Client and Know Your Product are about making sure investments fit the individual you’re advising. Know Your Client is about building a client profile that goes beyond preferences to include financial situation and investment objectives, plus factors like time horizon and risk tolerance. Know Your Product checks that the fund or investment being recommended actually suits that profile—the product’s features, risks, costs, and expected performance align with the client’s needs and tolerance for risk.

This is why the best description is the one that says KYC collects the client’s financial situation and objectives, and KYP ensures the product matches those needs and the client’s risk tolerance. The other choices miss important parts: limiting KYC to investment preferences is too narrow; saying KYC is optional contradicts regulatory requirements; and defining KYP as knowing the product’s manufacturing origin misses the real focus on product suitability and risk.