James Sinkeldam and Jeff Charbonneau
My business partner and I take great delight in being contrarians. For example, while most people are less than eager to head into work every morning, we share the Warren Buffet mentality of ‘tap dancing’ our way into our Guelph office. And while the vast majority of Financial Advisors are content with providing their clients with access only to mutual funds, and public stocks & bonds, we proudly celebrate an alternative opinion to wealth creation and preservation.
As Dealing Representatives (Private Wealth Advisors) in the province of Ontario, we are very passionate about assisting our clients in navigating the myriad of alternative investment strategies that exist in the private capital markets (aka exempt markets). Why is that? Well for starters, it is not lost on us that most of our personal financial success, and the same for a majority of our high-net-worth clients, has come from investments of private capital vs public securities. Another reason is sustainability or the test of time – although from a regulatory perspective this is considered a relatively new asset class. The underlying investments of real estate, private equity (business ownership), and lending/debt investments, to name a few, have been around for 1000s of years, compared to the modern public stock markets (242 years). As such, we view this as a very important asset category, which if used properly and suitably, has the possibility of enhancing overall portfolio diversification and risk-adjusted returns for investors.
So what does the new Offering Memorandum (OM) Exemption coming to Ontario mean to us? Well to be honest, initially we did not give it a whole lot of thought, as our business focus for the past several years has been working with high-net-worth investors. But then we were struck by the significance of this change, and it did not take long for us to realize that many of our clients’ friends and family members (not to mention our own) who are eager to work with us, but unable to because they do not meet the ‘accredited’ criteria, will now have access to a very important asset class. And frankly, they deserve our professional services as much as any other category of investor.
Commencing in January 2016, the OM Exemption will remove the barriers to entry allowing more Ontarians to access the private capital markets. We look forward to educating and assisting a new class of eligible investors in Ontario to diversify their portfolios through alternative strategies into sectors that were previously only afforded to Accredited Investors, institutional investors, endowments and pension funds. This further legitimizes the private capital markets as an important asset class that merits consideration by a much broader investor base in Ontario. And we certainly appreciate that suitability, risk and investment objectives are the focus of this regulatory change by the OSC, in order to safeguard the interests of the investor, rather than what could otherwise be an emphasis alone on the sale of product to this newly expanded sector of the market. This should result in an environment that fosters efficient and structured capital raising efforts, and enhances overall compliance – it’s a win/win.
Another important benefit of the OM Exemption that has an impact on our current business practice is that it forces issuers to disclose transparent and accurate information to our accredited investor clients in Ontario. It raises the bar and imposes expectations on those parties raising capital that will safeguard the interests of all existing, and future, clients.
Now, in terms of the impact on our investment advisory practice, there will also be some economic benefits, as the new Eligible Investor criteria will magnify the number of Ontarians that we can work with by an estimated ten-fold. And although it was not our intention to actively pursue this segment of the market, they equally deserve access to this important asset category, along with our professional services and guidance in the private capital markets. It is very validating to know that the OSC recognizes our value in the equation, and as a result has increased the yearly investment limit of eligible investors from $30,000 to $100,000 when working with the expertise of an Exempt Market Dealer and Registered Dealing Representative, primarily because we have the obligation to treat clients fairly, honestly, and in good faith in order to make sure investment decisions are suitable and in their best interest. To further enhance our value proposition to clients, we have thoughtfully elected to work with a Registered Exempt Market Dealer, Raintree Financial Solutions, which has a broad portfolio of investment offerings, which could be viewed as more objective in its approach than a single issuer.
Overall, this new ruling by the OSC serves as a strong endorsement for the services we provide to investors, and it also affords us an opportunity to professionally ensconce ourselves in the constant, yet ever-changing landscape of the financial markets. For this, and the reasons stated above, we look forward with great anticipation to the OM Exemption in 2016.
James Sinkeldam and Jeff Charbonneau are Private Wealth Advisors with Raintree Financial Solutions, who work together to effectively articulate concepts and strategies of wealth creation and capital preservation. With more than 20 years experience in the investment industry (Walton Capital, Skyline Inc., and ScotiaMcLeod), James has enjoyed a successful career and continues to provide a loyal following of high-net-worth families with strategic investment advice.
In compliment, Jeff Charbonneau brings more than 25 years experience in the areas of corporate finance, business operations, strategic planning, and analysis with a view to the structure of real estate and private equity investments.