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Wealth Professional | 20 Mar 2015, 11:46 AM Agree 0
While the MFDA continues to police advisors using leverage inappropriately, SRO suggests things aren’t nearly as bad as they once were.
  • Wealth Advisor | 20 Mar 2015, 03:15 PM Agree 0
    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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