MFDA to advisors: Watch the misleading claims

MFDA to advisors: Watch the misleading claims

MFDA to advisors:  Watch the misleading claims

“Every once in a while we will see someone using the slogan ‘Make Your Mortgage Tax Deductible’ and we will jump in and intervene and get them to withdraw that kind of marketing material because any investment loan you can deduct the interest payable… In our view we [MFDA] think this is misleading to claim that you’re making your mortgage tax deductible; you’re still paying your mortgage and getting the same interest tax-treatment as you would with any other investment loans.”

This particular case centred around a two-year period between 2005 and 2007 prior to the recession.

Since then it seems advisors and investors are both more reluctant to use leverage to any great degree. Add to this greater scrutiny from both the regulatory and dealer level and it’s clear leveraging schemes such as the Smith manoeuvre aren’t the darlings they once were.

“We have seen a decrease in the prevalence of these types of manoeuvres. From an enforcement perspective, while we haven’t taken our foot off the gas by any means, we are not seeing the same frequency and incidence of this kind of leveraging (the various maneuvers, encouraging investors to tap into their home equity) as was apparently occurring pre-2008.”

It seems you can teach an old dog new tricks after all. 

read more > 1 2

1 Comments
  • 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.
    Post a reply