MFDA to advisors: Watch the misleading claims

MFDA to advisors: Watch the misleading claims

MFDA to advisors:  Watch the misleading claims While the MFDA continues to police advisors using leverage inappropriately, SRO suggests things aren’t nearly as bad as they once were.

WP recently ran an article about a PEI mutual fund salesperson who was banned from performing any securities related activities for MFDA members for a period of 10 years. The veteran advisor used a derivation of the Smith Manoeuvre to generate almost $1.4 million in mutual fund sales from a total of 15 different clients.

The move was profitable for the former Investia Financial Services mutual fund salesperson who likely netted more than $10,000 annually from the leveraged investment scheme.

This level of abuse got WP wondering whether leveraged investment schemes such as the one run by Lloyd Snyder are more or less prevalent today than in the past. MFDA Managing Director of Enforcement, Hugh Corbett, was kind enough to take the time Thursday to address the issue.

“You can fancy it up any way you want,” says Corbett, “but at the end of the day you’re telling investors to borrow against their house and invest those proceeds… and that’s really what gets them in trouble.”

Snyder’s version of the Smith Manoeuvre ultimately relied on the willingness of clients to borrow against their homes. Corbett says the MFDA has little tolerance for deceptive practices by the advisors it licenses.

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  • Wealth Advisor 2015-03-20 3:15:19 PM
    It is not that leverage is bad, necessarily.
    Canadians that own homes use leverage - its called a mortgage.Without leverage, almost all Canadians would not be able to afford to buy a house. Stock brokerage accounts are often leveraged too. They are called margin accounts.
    However, Canadians do not generally, sell their houses when they have dropped in value (American experience excluded) because houses are shelter.

    Most unfortunately, the same does not apply to the stock market. The increased use of leverage may not necessarily coincide with low interest rates but coincides with increased interest in the stock markets. I have had to deal with the aftermath of another advisor's leveraging strategy at the tippy-top of the market just before the tech wreck. It wasn't pretty.

    Advisors must know or should know that leveraging accounts during lofty markets is a very high risk strategy and the double-edged sword is keenly sharp.

    I have to agree with the investor advocates or actually go further. Ban all leveraged accounts and our industry would be better off without them. There are far too many MFDA judgments regarding the use/misuse of leverage. Our branch does not permit the use of leverage accounts. Although the use of leverage is allowed company wide -as a group, we decided against it.
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