What they DON’T tell you about the investment marketplace – part 1
Throughout my extensive career in investment, I have noticed that an overwhelming majority of investors have been left to wonder whether their financial advisors really have their best interests at heart, or if investment products are simply ‘sold’ to them for a commission. As you will see, these concerns are not entirely unfounded.
Don’t shoot the messenger here, but most investors are being duped by their financial advisors. However, it is not entirely the fault of the financial advisor. The problem, in fact, lies with the investment industry itself and how it functions. In this article, I want to shed some light on this unfortunate problem so that you can better understand what has been happening to you and your investments up to this point.
At Canadian Investment Services (CIS), we strongly believe that educating our clients on how the investment marketplace functions leads to tangible investment results from informed decisions based on detailed knowledge. By informing and educating our clients with ultimate transparency, our investors avoid being duped while they actually become better equipped to determine what investment products and/or financial services they need. More importantly, they become better able to determine what they actually want to invest in within their own personal and/or corporate financial plan.
Understanding the investment marketplace
The simplest way to explain the investment marketplace is like this: think of the overall investment marketplace as various retail stores selling a variety of different investment products (mutual funds, stocks, bonds, private equity, and real estate-related investments) and/or providing financial services (mortgages and/or insurance).
Now, picture these retail stores inside an indoor mall, which we’ll call The Investment Marketplace Mall, which has a hallway with 5 retail stores on the left-hand side, and 1 large retail store on the right-hand side. The 5 retail stores on the left-hand side all sell their own investment products, with each store selling a completely different investment
The 5 stores on the left-hand side of the mall sell the following: product than what is found in the other stores.
- Store #1 sells only mutual funds
- Store #2 sells only stocks and bonds
- Store # 3 sells only private equity
- Store #4 sells only syndicated mortgage investment products (while their primary focus is to provide mortgage services)
- Store #5 sells only segregated fund investment products (while their primary focus is to provide you with insurance services)
So what happens on the right-hand side of the mall? Well, that’s a big store that sells only real estate-related investment products that are unfortunately unavailable to the stores on the left-hand side of the mall. And, to let you in on a secret, the investment industry does not want you to know about the real estate store, given it only sells real estate-related investment opportunities.
But there are so many real-estate investment opportunities many investors are gagging for which the traditional investment marketplace (left-hand stores) do not have access to due to regulatory and licensing constraints. The real estate store on the right-hand side offers many real estate investment products such as real estate fix ‘n flips, real estate joint ventures, real estate limited partnerships, private mortgage lending in your RRSPs, and facilitates the Child Home Ownership program as well as offering many other types of real estate-related investment products.
Apologies for the rather clumsy analogy, but hopefully you get my point: one of the big problems in the investment industry is that the overall investment marketplace is structured to prevent investors from knowing about real estate-related investment opportunities.
How is the overall investment marketplace governed and regulated?
In Canada, the investment marketplace is governed separately by each province. For example, Ontario is governed by provincial regulations established by the Ontario Securities Commission (OSC), as well as the Financial Services Commission of Ontario (FSCO, soon to be renamed FSRA – Financial Services Regulatory Authority of Ontario).
Back to The Investment Marketplace mall analogy: the OSC and FSCO/FSRA only govern the left-hand side of the indoor mall (stores 1, 2, 3, 4, and 5), and do not govern nor deal with the right-hand side of the mall – the Real Estate store. It may be hard to believe, but the Real Estate store functions without the need for an investment license from either the OSC or FSCO/FSRA. In fact, a person does not need any type of investment license to function within the Real Estate store, but those advisors who do hold an investment license are prevented from functioning within The Real Estate Store.
So, to clarify: the OSC governs and regulates the investment products found in stores #1 (mutual funds), #2 (stocks and bonds), and #3 (private equity), while the FSCO/FSRA governs the financial services found in store #4 (mortgages) and store #5 (insurance). The Real Estate Store is not governed by either the OSC and/or the FSCO/FSRA.
So what’s the problem?
The problem is that the overall investment marketplace is designed to ‘trap’ investors into one of the “stores” on the left-hand side of the indoor mall, and designed to not let them visit the other stores. And trust me on this, the investment industry does not want you, the investor, to know about the Real Estate store on the right-hand side of the mall (which is where all the real estate-related investment opportunities are found).
So why doesn’t the investment industry want investors to know about the Real Estate store? Because the big banks and large investment companies make too much money keeping you trapped inside store #1 (mutual funds) and store #2 (stocks and bonds).
The investment industry is strategically structured to keep investors trapped into store #1 and store #2 because this is where the big banks and the large investment companies make a fortune from their investment products, such as mutual funds and stocks. Given the banks and the investment companies control the OSC (just check out who sits on the OSC board of directors), this allows them to make a fortune for themselves off the backs of so many unsuspecting investors who simply do not know any better. This is why we at Canadian Investment Services think it is crucially important for investors to better understand the overall investment marketplace.
I hope that this newfound information will help you make better, more informed investment decisions based on what is available to you in the real estate investment marketplace.
Visit www.canadianinvestmentservices.com to learn how we can help broaden your access to diverse investment opportunities.
That’s all for Part I of this article topic. Be sure to look out for Part II where I continue to explain more about the OSC and FSCO/FSRA and what it means for you.
Until then, take care.
Gerry J. Hogenhout
Founding Principle, Canadian Investment Services
Edit: On The Run Agency