New OM in Ontario will present big opportunities

Provincial regulators announced in late October that a new OM exemption would be introduced in Ontario effective Jan. 13, 2016. Until now, Ontario has been the only Canadian province without an OM exemption for raising capital privately.

See: Ontario to introduce OM exemption

“Starting in January, you, as advisors, and your clients, are going to have access to an investment class and category that you’ve never been able to look at before,” said Dean Lower, president and CEO of Calgary-based exempt-market dealer (EMD) Privest Wealth Management Inc.

Under the exemption, which is pending ministerial approval, retail investors will be able to invest up to $10,000 in OM investments per 12-month period, if they’re non-eligible investors; up to $30,000 per 12-month period if they’re eligible investors; and up to $100,000 if they’re eligible investors who receive advice from a registrant.

“It’s going to be a different reality for [advisors],” Pettipas said. “Your clients are going to be looking at this.”

The change presents a significant opportunity for advisors to bring their clients new investment opportunities, said Adam Derges, vice president of strategic initiative with Edmonton-based EMD Raintree Financial Solutions.

“It’s an effective way for you to offer to your clients something that is truly different,” Derges said.

As public stock markets have experienced considerable volatility in the past few years, a growing proportion of investors are seeking out alternative investments, he added. In particular, many investors like the idea of investments that are more tangible than traditional financial securities, such as real estate, Derges pointed out.

“As the world gets more turbulent, as the world gets more uncertain,” he said, “more people want a real asset that they can touch, that they can see, that they can feel.”

Added Derges: “The demand for what we do has never been higher.”

Exempt-market investments are often long term and illiquid and can provide returns as high as 20%, Derges said. However, he warned that they are not without risks.

“To think that you could generate returns that high without taking risk is ludicrous,” he said.

Derges pointed out that it’s critical for advisors to ensure these investments are suitable for clients’ risk tolerance before recommending them, and to ensure clients fully understand the risks they’re taking.

“You need to understand the risk, both for your business and for your clients’ well being,” he said. “There’s nothing wrong with risk — risk is in everything we do. But, using that risk appropriately, and responsibly, that’s the trick.”

The panellists at the IFB’s fall summit stressed that it’s important for advisors interested in the exempt-market space to educate themselves properly on this segment of the industry and to pursue the appropriate licenses and qualifications.

“This is not an industry for part-timers, by any stretch,” said Lower.