Source of Wealth and Source of Funds

Those who are new to the wealth management sector might be surprised to find that they experience quite an extensive grilling about their finances from prospective providers as they get close to being onboarded as a client. The first thing to remember is that these questions are a regulatory obligation imposed on wealth managers as Anti-Money Laundering (AML) measures, and are certainly not to be taken personally.

It also helps to know exactly what requirements an institution is trying to satisfy. Due diligence on a potential client’s Source of Wealth (SoW) and Source of Funds (SoF) are the backbone of AML checks.

As the name suggests, SoW information establishes where wealth originally came from and so might include details of inheritance, a business sale, high lifetime earnings or even a windfall like a lottery win. Bear in mind that institutions cannot simply take a client’s word for this and so will need to corroborate how they acquired their wealth by looking at any documentation they can supply, and potentially public sources of data like corporate registers or even the media. Bear in mind that things might proceed more slowly if you are a client from overseas, have a complex financial background or different languages are involved in documentation.

SoF checks, meanwhile, drill into exactly how the proposed account will be funded. This will naturally include how the funds have been or are being generated, but also where the money is to be transferred from in terms of country and institution. It may also be the case that a legal entity like a trust or corporate entity is funding the account, rather than a person. In all cases the relationship between the remitting party and the account holder will be examined closely.

Although all institutions have to perform extensive SoW and SoF due diligence, this is yet another area where quality of provider plays a key role in streamlining the experience. Leading firms often engage AML service providers who will be able to validate claims quickly and independently. Many now also use cutting-edge AI technology so that the internet and formal data sources can be scanned for relevant information at speed.

A high-quality wealth manager will be at pains to demonstrate immaculate compliance while also ensuring that the AML due diligence stage of onboarding is as efficient as possible. They will also give you timeframes and keep you informed every step of the way.