Client onboarding, KYC and documentation
The onboarding sequence
A defensible onboarding file contains, in order: (1) identification and KYC - PAN, proof of identity and address, verification through a SEBI-registered KYC Registration Agency (KRA), Aadhaar-based e-KYC where permitted, and compliance with the Prevention of Money Laundering Act, 2002 and its rules; (2) client categorisation and risk profiling - capturing age, income, liabilities, horizon, liquidity needs and risk tolerance; (3) suitability mapping of recommendations to that profile; (4) a signed investment advisory agreement stating scope, fees, termination, conflicts and grievance redressal; (5) fee consent and mandate with the prescribed fee cap and mode of payment; and (6) periodic re-KYC, whose frequency depends on the client's risk categorisation, with enhanced due diligence for high-risk clients, politically exposed persons and beneficial owners of non-individual clients.
Traps
- Confusing KYC (identity/AML) with risk profiling (suitability). They are different documents with different purposes; questions deliberately swap them.
- Assuming KYC done through one intermediary must be redone everywhere - the KRA centralises records.
- Ignoring the periodic updation obligation; KYC is a continuing duty, not a one-time gate.
- Omitting the family/related-client concept when computing fee caps and disclosures.
- Accepting cash or payments in a manner inconsistent with the prescribed fee-payment modes.
Rule of thumb
"No file, no advice." If you cannot point to the signed agreement, the risk profile, the KYC record and the fee consent, the advice is non-compliant regardless of how good it was.