By: Cora Pettipas
Diversity in ideas, people and businesses bring flavour and colour to life (and the economy). We need to nurture the diversity in life – especially within our industry. The minute we are not allowed to have differences in opinion, and actions, is the moment we are not free thinkers anymore. Diversity breeds flexibility and growth. Diversity in investing, of course, is not a new theory. Diversification is a cornerstone of portfolio management.
When you take diversity out of the investor experience, the client ends up with advisors that say the same things, offer the same investments with the same restrictions. A dreary grey Pablum of investor experience is created.
Taking overly safe actions in life can turn out to be risky. For example, take the seasoned investor that hoards their money in a one or two percent GIC so they do not have to fear losing their funds. They do not lose their principle, but what they have lost are all those potential gains. They also lost purchasing power on our ever inflating currency, their potential future income. Millennials are demonstrating similar risk adverse behavior, according to a recent study done by Goldman Sachs Group Inc. Only 18% of those surveyed thought that the public markets was the best way to invest, and 16% said it was too risky and unfair to smaller investors. As a demographic, they are choosing not to invest, not taking advantage of their long time horizons. An alternative strategy that could help build wealth in both these groups would be allocating some of the funds to a diverse group of riskier well-chosen private investments can lead to better returns, even if all the investments do not do well.
Diversity also speaks to investor options. The exempt market has a wide array of investment options and structures that can assist investors in building their wealth. Where there is diversity and innovation, there is investor options – and opportunity. As David Kaufman stated in his article, “If you were to spend some time reading the biographies of the wealthiest people on the planet, virtually every one of them (leaving aside those who simply inherited their wealth) made their fortune in private equity.”
This is the purpose of our industry; to enrich clients while funding businesses. This is what we do. We, as an industry, need to be proud of the offerings we can provide investors. This is a world of innovative Issuers, patient money untethered by quarterly ratio analysis and conspicuous market risk. I believe that the exempt market, now only five years old in its current form, is starting to prove itself with actions. We are starting to see more successful exits and see more advisors and investors come to this space because they want something different, they want more diversification and yield.
NEMA wants to support our industry doing this important work with two new tools: A Code of Conduct & a quality E&O insurance program. Even though most Advisors do the right things, there can still be a chance of a client complaints or disputes. The world of financial services is unfortunately becoming more litigious, and Advisors need to protect what they have built with best practises and insurance. Our E&O program is with BFL and Zurich, and we have worked hard to make sure it is best in class; a long term, sustainable, and cost efficient program. NEMA will work on a corporate group program as the next step to create value for our members. For more information, please contact us.
The exempt market is an exciting place to be right now, and I for one would not want to be anywhere else. As Phil du Heaume stated in his article, “The last five years may have been a period of learning and adapting, but the next five have to be a time of nurturance and growth.” With all we have accomplished as an industry so far, just imagine where we will be in another five years.