War on advisors: Nanny-state regulators and lobby groups are sidelining investment experts, to the detriment of investing public

The following views and opinions presented in this post are solely those of the author and do not necessarily represent those of CSE – Canadian Securities Exchange.

Originally published January 8, 2014 in Financial Post Comment: http://opinion.financialpost.com/2014/01/08/nanny-state-regulators-and-lobby-groups-are-sidelining-investment-experts/

The current regulatory assault is based on the premise that investment advice is worthless. This is an abuse of power

Over my long career in the investment industry, I have observed two key components behind successful investing. The first is the correct interpretation of information. Investment success is not dependent upon information but rather on how one looks at or behind that information. What is it really telling you against the backdrop of a wider picture, experience, intuition and often contrary thinking?

The attack on the independent investment industry is reinforced by lobby groups who, in many cases, have been sponsored by regulators.

Information itself usually just reinforces existing trends or facts which are often already priced into the market. Gains come from changes in events, perceptions and possibilities, which are rarely anticipated in the public forum. That is where experience and professionalism come into play.

The second successful investing ingredient is that of quelling one’s emotions. Throughout my experience, I have seen more money lost, or simply left on the table, because of emotions than any other single cause. The inability to pause and take a broader or longer view in duress situations is common to many investors. It is a costly failing.

It is also part of human nature to “buy high” and “sell low” because of the comfort of being in tune with the prevailing “wisdom.” The typical investor rarely invests during dark or crisis periods but that is where the bargains live.

Many years ago I purchased a seat on the New York Stock Exchange for $2-million for our company. Within a month, and as a result of a scandal, they were trading at $1-million. That quick sharp drop certainly gave me a pause, but upon discussing it with our company’s partners (a key part in quelling one’s emotions) we resolved the upside possibilities still existed and proceeded to purchase another 48 seats, whose value eventually reached $9-million per seat. What I am pointing to is the critical role of advice in helping the investor to clarify what is really going on in markets and assisting to quell the emotions of greed, fear and anger.

These critical success factors point directly to the important role of the “Investment Advisor” or broker and yes, they are not all the same and yes, we do not win with every investment and yes, we too have bad periods. This also holds for other professions. But as Red Adair, the famous oil well firefighter, put it: “If there is anything more expensive than hiring a professional, it is hiring an amateur.” Any success I have had in investing has come from bouncing my ideas off our team or my “Investment Advisors” and they are worth every penny I pay them.

Throughout 2013, the critical role of advising investors has come under constant and withering attack by regulators, their sponsored lobby groups and some elements in the media. Their rationale is certainly not borne out by the facts if anyone looks at overall investment results and the most recent survey of investor satisfaction with their Investment Advisors.

One can only conclude that self interest, empire building and revenues could be factors – at the expense of a critical component in Canada’s economic growth.

Provincial securities commissions and their sub-regulators have expanded their reach geometrically over the years, far beyond investor protection into procedural audits, in order to make sure the correct paper work is in place to validate the obvious.

For example, the expansion of the Ontario Securities Act is proceeding at such a rate that even securities lawyers are complaining about not being able to keep up.

The costs of compliance of this regulatory onslaught are now decimating the last of the independent brokerage firms and thus depriving investors of choices, beyond bank controlled mutual funds. Corporations are also avoiding accessing public securities markets and staying within the realm of “private equity” investment, thus depriving the average retail investor of opportunities and yes, risk as well.

The bottom line is the current unprecedented regulatory assault is based on the premise that investment advice is worthless

The regulatory “nanny state” view of the world is now moving to effectively prohibit all but wealthy investors over 65 from holding an equity (stock) portfolio. Instead, it is mandated that they must hold bonds (currently yielding 3% or under) versus a portfolio with higher dividend or growth companies. Let me help regulators by pointing out that a major portion of many of us over 65 are not stupid. In fact, we tend to become a little smarter and wiser with time. Further, we now have a life expectancy which will require growth and inflation protection (yes, inflation will be back). In short, bonds are high risk at current interest rates.

Another of the current assaults on Investment Advisors is the war on “trailer fees” paid to brokers who have clients in mutual funds. The biggest error in buying mutual funds is not owning them long enough. The role of keeping investors in place is a valid one. Most mutual fund managers get it right after a year or so of poor results. Switching mutual funds at times like these is like changing lines at the airport – takes you longer to get where you want to go.

The bottom line is the current unprecedented regulatory assault is based on the premise that investment advice is worthless (part of an earlier media campaign) and fees would be better spent on yet more regulations. The attack on the independent investment industry is reinforced by lobby groups who, in many cases, have been sponsored by regulators. This is clearly an abuse of power and smacks of conflict of interest. It is like the fire department hiring people to yell fire in order to get bigger budgets.

Complicit in all of this are some media personalities who seek to craft themselves as unlicensed investment authorities.

The role of the media is to disseminate information. The task of savvy investors and their investment advisors is to look behind the headlines and the obvious and to anticipate possibilities. Investment advisors have historically been key players in Canada’s prosperity. It is far too dangerous to allow their function to be further diminished or destroyed.

As far as provincial governments are concerned, they have given their regulators a free, unchecked hand to do as they will with our economic and capital market potential. I would remind governments at all levels that fiscal, monetary and grant efforts will have little lasting economic impact if capital markets are inefficient, inaccessible and unnecessarily costly or cumbersome.

CSE Chairman Thomas Caldwell
CSE Chairman Thomas Caldwell

Thomas S. Caldwell, C.M.,
Chairman & CEO, Caldwell Securities Ltd.,
Chairman, Canadian Securities Exchange

CNSX Markets Inc., has rebranded itself to Canadian Securities Exchange (CSE)

TORONTO – January 6, 2014 – CNSX Markets Inc. announced that, effective today, the exchange will carry on business under the name “Canadian Securities Exchange”, abbreviated for convenience to the “CSE”.  All of the CSE’s web services are now available at www.thecse.com

CNSX is now CSE

The choice of the name Canadian Securities Exchange reinforces three of the central characteristics of the organization:

“Canadian”: Headquartered in Toronto, with an office in Vancouver and with representation in Calgary and Montreal, the CSE serves the needs of entrepreneurs with efficient access to the Canadian public capital markets. The Canadian market is recognized internationally for its ability to facilitate the creation and financing of public companies – a significant source of employment and economic growth in the country.

“Securities”: The CSE provides listings and trading services for more than just common equities. Convertible debentures, debt instruments, provincial government bonds, structured products and income trusts are also currently listed on the exchange. As issuers and the corporate finance community develop investment products designed to appeal to various segments of the investor population, the CSE will look to enhance both primary and secondary market liquidity for these new instruments.

“Exchange”: Issuers on the CSE are subject to a number of requirements designed to promote investor protection: prospectuses or other disclosure documents reviewed and approved by a securities commission; continuous disclosure requirements for material information; monthly updates from each issuer available on the CSE’s web site; and periodic regulatory filings available to investors on www.sedar.com

The CSE also provides a single, continuous auction market service, where bids and offers are displayed, and incoming marketable orders are traded on a price, broker, and time algorithm. Trading services are transparent, with real-time market information available from all major data vendors and at www.google.com/finance

Richard Carleton, CEO, commented:

“we are looking to reduce complexity and cost in the delivery of exchange services wherever possible. Our recent trading system consolidation where all Canadian listed instruments are offered on a single trading system is a great example of this approach. We are also well known for our responsive and cost effective services for companies looking to raise capital from the public equity markets.

By presenting all of our services under a strong, unified, brand, we are reinforcing our position as the exchange for entrepreneurs in Canada.”

The Canadian Securities Exchange will be hosting a number of events across the country to introduce the new brand to the investment community in the coming weeks. Check for details of upcoming events at blog.thecse.com/category/events/

FOR FURTHER INFORMATION PLEASE CONTACT:
Richard Carleton
CEO, CNSX Markets Inc.
416-367-7360
richard.carleton@thecse.com

Welcome to the Canadian Securities Exchange!

Welcome to the new blog  for the Canadian Securities Exchange, The Exchange for Entrepreneurs.

Operated by CNSX Markets Inc., a recognized stock exchange, the Canadian Securities Exchange (or “the CSE” for short) encompasses the activities formerly carried on by the Canadian National Stock Exchange and Pure Trading.

we will continue to focus on lowering the cost of public capital for entrepreneurs in Canada.

As our team travels around North America talking to members of the investment and issuer communities, we hear two consistent areas of concern:  markets have become too fragmented and complex; and the costs of doing business as traders, corporate finance professionals, advisors and issuers in the public markets are becoming prohibitive.  As an exchange operator we are doing our part to address both concerns:

  • In the last few weeks we consolidated the two trading systems (CNSX and Pure Trading) we have operated over the last several years.  Eliminating one of the systems, and related order entry and market data gateways, reduced network and access costs for our dealer and vendor partners.  At the same time we have combined our market data services, meaning that end users receive data for CSE-listed stocks and other Canadian exchange listed stocks on a single service.  Costs for end users who took both of our services previously, have seen their market data costs drop as a result.
  • At the same time, we will continue to focus on lowering the cost of public capital for entrepreneurs in Canada.  Our listing model focuses on enhanced disclosure from the issuers to address regulatory risks and leaves it to the market to analyze and value business risks inherent in a security. The Canadian Securities Exchange is, as a result, able to offer companies a faster and lower cost avenue to public capital than available alternatives.

Already known in the industry for our customer focus and service, we have a number of exciting initiatives scheduled for the coming months designed to address the cost and complexity challenges faced by all of our customers:

  • New trade execution pricing designed to promote liquidity while addressing the cost challenges faced by agency brokers;
  • Creation of a market making programme for CSE-listed stocks to promote tighter spreads and deeper books.  As a component of the programme, a series of tools will be provided for market makers;
  • Delivery of next generation order routing and risk management tools designed to assist dealers in meeting their best ex and best price obligations, while preserving their ability to service direct access customers;
  • Addition of new resources to support our issuers in their efforts to be better heard in the investment community.
CSE CEO Richard Carleton
CSE CEO Richard Carleton

We look forward to meeting with many of you in the coming months as we schedule events across Canada to introduce our new brand and vision to the investment community.

– Richard Carleton, CEO