How To Make a Private Investment Using RRSP or TFSA Funds

Most Exempt Market issuers allow you to invest using registered funds.  This includes RRSP’s, TFSA’s, RESP’s, RIF’s, LIRA’s and LIF’s.

A common misconception among investors is that they will have to pay taxes on their registered funds if they use them towards a private investment opportunity.  This is not the case as the funds are transferred between accounts and never leave the registered umbrella.

Here is the process:

– We use Olympia Trust Company for all of our clients that want to use registered funds to invest.  We would fill out the documents to open you up a self-directed registered account through Olympia Trust if you do not have an account already.

– Once the account is open, you can make a new contribution, transfer existing funds from another institution or a combination of the two.

– Once the required funds are in your account at Olympia Trust, then it is a matter of completing documents to make a private investment.

– Olympia Trust charges an annual account fee of $150.00 + GST and then anytime you make a private investment there is a purchase fee of $75.00 + GST.

This brings us to the next question…

Should You Invest In The Exempt Market Using Registered Funds?

With private investing, everything comes down to suitability, meaning – Are these types of investments suitable for you and your portfolio?  There are many things to consider here including your age, your time horizon, your risk tolerance and your financial goals.

Contact me today and we can talk more about this and decide if private investing is right for you!

 

Shannon Pineau
Exempt Market Dealing Rep
E: shannon@whitehaven.ca C: 403-872-4010 TF: 1-855-872-4010

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Wondering what’s available for private investment opportunities?  Here is a current list.

Looking for private Portfolio Management options?  I can help.

Would you like to contact me to learn more?  Please do!

A Brief History of the Exempt Market

This post could go on for days…so much has happened in private investing over the last 12+ years! The title says brief though so that’s what I’ll try to be.

Where It All Began

Private investing has always been around in some form or another as people have always needed funding for their business growth or product ideas. In the past it has been referred to as the private or “alternative” investment market and it has largely been made up of wealthy or “accredited” investors.  

These investors would invest larger amounts in things like:
– Private business or real estate deals through close friends or associates
– Private MIC’s
– LP’s
– Venture capital deals
– Private leasing funds etc.

These types of private offerings could be very lucrative but were not available to or easily accessed by the “average” investor. You had to be in the know and generally have a high minimum to invest.

The Early 2000’s – The Beginning For “Eligible” Investors

Then the early 2000’s hit and private investing – particularly in B.C. and Alberta – went retail!

We were experiencing a very robust economy at that time with low borrowing rates and easy, accessible credit. Alberta had also experienced a big jump in housing prices which in turn gave home owners access to secured lines of credit. People were looking to invest and, in response to this, real estate development companies started shooting up everywhere, looking to raise capital.

And, where in the past these companies would have sought out accredited investors or friends/family/business associates – now they relied on the use of the Offering Memorandum to be able to raise capital from “eligible” (or average) investors.

This opened up a whole new market to people who had likely never even heard of these types of investments before. Or if they had – never had access to them.

These new private investment opportunities were very appealing to the average investor because of the projected high rates of return, low minimum investment amounts (generally a $5,000 minimum) and the ability to invest with RRSP funds.

This was essentially the beginning of the private investment market for most Canadians and it was a very busy time. Issuers would put on big presentations, investors would fill the rooms and millions were invested in a multitude of private investing companies.

It was a perfect storm…

– Many inexperienced investors
– Borrowing to invest
– A high-risk market
– Many inexperienced issuers
– Many inexperienced advisors
– Flawed investment structures
– A brand new space that still had very little regulation or oversight. (and that’s not a criticism of the regulators – things went crazy in a very short period of time and it would have been impossible to contain it).

And in 2008/2009, The Storm Hit

You can see where this is going (or may have even experienced it) and in 2008/2009 the private investment market imploded. Many issuers went into bankruptcy and, because of the long-term nature of private investments, most investors lost all of their invested capital.

In 2009, when the investment companies stopped answering the phone, most calls then started going to the provincial regulators – for example the Alberta Securities Commission.
So…after fielding those thousands of calls and now armed with all of the experience of what had just taken place (and with private investing now at a relative standstill while all the dust settled) the provincial regulators took their much-needed opportunity and reformed the private investment market completely.

2009 – A Pivotal Year in the Private Investment Space

Okay, I know I said I would give you a brief history and you might be concerned because I’m only at 2009. Never fear though because when you talk about the history of private investing, it usually comes down to what happened before 2009 and what happened after 2009.

A few years before was the birth of the market for “eligible” investors and a completely chaotic time that resulted in huge losses and a ton of learning experience for everyone involved.

After has been the continuous evolving of a much more regulated market space.

I don’t want to give you the impression that it has been all smooth sailing in this after period either.  There have been further investment delays and losses over the years, particularly with the economic downturn related to oil.  There are also many cases where investors have found themselves over allocated in private investments, particularly if they invested several years ago as there were no investment caps in place prior to 2016.

Where We Are Now

There continue to be many changes over time and they are always in favor of protecting investors. Overall, the regulators want to ensure that investors:

– Understand the market
– Really understand the risk involved
– Are aware of the long-term nature of private investments
– Don’t invest too much
– Can withstand a loss
– Find a private investment that is suitable for them based on their goals and where they are at in life

What’s Next?

Many things!  But that will have to come in another post.

To Sum Up

When I entered the private investment market in 2006, it was crazy times and still quite new to me as well. Through the next 12+ years, I’ve witnessed (and experienced) some huge ups and downs as things changed dramatically over time and I feel very positive about where things are now in the Exempt Market. For something that is still so new to the majority of people, it has evolved dramatically into a much more investor-friendly space.

P.S. I know this is a very condensed version of all that has taken place in private investing since I entered the market. That’s intentional though, so as not to completely bore the newcomer. There is much more information to come and eventually the whole private investing picture will be before you.

 

Shannon Pineau
Exempt Market Dealing Rep
E: shannon@whitehaven.ca C: 403-872-4010 TF: 1-855-872-4010

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shannonpineau.com

 

Wondering what’s available for private investment opportunities?  Here is a current list.

Looking for private Portfolio Management options?  I can help.

Would you like to contact me to learn more?  Please do!

Eligible or Accredited?…That’s The Question

If you know the answer to this question, you will have a clearer picture about what you can and cannot do in the Exempt Market.

Let’s start with the majority of people who would generally be considered “average” investors. They usually have varying levels of investing experience and are also known as…

ELIGIBLE INVESTORS

To be “eligible” you either have to meet the net worth or annual income requirements:

– Your net assets have to be greater than $400,000 and or your annual income for the last 2 years has to be greater than $75,000 before taxes.

– If your income doesn’t quite make it alone, you can combine with your spouse and then your combined annual income has to be greater than $125,000 for the last 2 years.

If you meet one or more of these requirements, then you are an “eligible” investor. And being eligible means, you can invest a certain amount in the Exempt Market.

But just because you can, doesn’t always mean you should so please read on after I describe the next type of investor…

ACCREDITED INVESTORS

To be considered an “accredited” investor, you still have to meet one or more similar types of requirements as above but they are considerably higher.

– In this case, your financial assets have to be greater than $1 million, and notice that’s financial assets and not net assets. Financial assets are tangible liquid assets and don’t include property.

– If you want to include things like property and rely on your net assets for accredited status, your net assets must exceed $5 million.

– For the income requirements your annual income must be greater than $200,000 for the last 2 years and if you combine with a spouse it must be greater than $300,000 annual income for the last 2 years.

SO WHAT DOES ALL OF THIS MEAN TO YOU IN THE PRIVATE INVESTING WORLD?

Here is a quick summary:

– If you are not “eligible” – meaning that you don’t meet any of the requirements of an eligible investor, you can still potentially invest in the Exempt Market but it has to be $10,000 or less in a 12 month period.

– If you are “eligible” you can invest $10,000 or more in the Exempt Market but you can’t exceed $100,000 in any 12 month period.

(Before you invest in anything though, you would meet with a Dealing Representative, such as myself, and decide if private investing is a good fit for you.  We would consider things like your age, your time horizon, your financial objectives and your risk tolerance to determine if these types of investments are “suitable” for your portfolio. And if they are, we would also take various things into consideration to determine how much to allocate there. There are certainly exceptions but as a general rule, it is not advisable to exceed 30% of your net financial assets in private securities. That percentage can also be a lot less depending on your current financial situation and experience in private investing.)

– If you are “accredited” you are not subject to these caps and limitations. The overall assumption is that you achieved accredited status by having a good understanding of how to invest your money and you can generally invest it however you like.

I will say though that just because an investor is accredited, doesn’t necessarily mean they should exceed the allocation guidelines that are in place for an eligible investor. There is a lot of discussion to be had before any investment is ever made because there is a lot to take into consideration. Particularly things like previous experience with private investing and a full understanding of the risks involved.

TO SUM UP

Private investing is still relatively new to “eligible” and “accredited” investors alike so it’s important to get all the information you need before you decide if it is right for you.

I hope this post was helpful for you to figure out what type of investor you are. And of course, there are much more official definitions and explanations to describe these terms and I will link to them below. The links are to a great website that I visit often as they present excellent discussion around the topics as well.

Definitions:

Thanks for reading! Contact me anytime to talk more.

Shannon Pineau
Exempt Market Dealing Rep
E: shannon@whitehaven.ca C: 403-872-4010 TF: 1-855-872-4010

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shannonpineau.com

 

Wondering what’s available for private investment opportunities?  Here is a current list.

Looking for private Portfolio Management options?  I can help.

Would you like to contact me to learn more?  Please do!

Welcome to Private Investing

Hello, I’m Shannon Pineau…

and I’m a Dealing Representative with WhiteHaven Securities Inc. – an Exempt Market Dealer.

Now if that just made sense to you, you can likely jump ahead in my blog posts a little but if you’re like most – you may not know a lot about private investing in Canada. And that’s just fine because that’s what I’m here for – to tell you all about it.

There are two things that I have learned from my years in the financial industry – that people want to make higher returns on their money and that they don’t have a lot of extra time to learn about how to do that. That’s why most people stay in mainstream, lower interest investments or, if they do decide to branch out, sometimes lose money in “get rich quicker” scenarios.

There is a much better alternative though and that is the Exempt Market.

Throughout my blog, I will cover all kinds of topics to explain private investing – in layman’s terms – and I will try to keep it short, sweet and interesting.

Depending on your level of investing experience, you can decide how much time you want to spend in Exempt Market 101. For those that are new to private investing, I really think this will give you a great introduction and for those who are more experienced, there will be lots of other topics to follow.

My goal is to make sure my clients have a great understanding of the private investment markets.

Armed with this information:

a) they can find those higher returns
b) they can clearly see the risks and rewards involved in achieving those higher returns

And back to my “most people don’t have a lot of time” point – I also want to make sure you can find everything you need in one place.

Canada’s Exempt Market can be a great place to find those excellent investment opportunities that haven’t always been available to the average investor – BUT – there’s more to the story!

 

Shannon Pineau
Exempt Market Dealing Rep
E: shannon@whitehaven.ca C: 403-872-4010 TF: 1-855-872-4010

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shannonpineau.com

 

Wondering what’s available for private investment opportunities?  Here is a current list.

Would you like to contact me to learn more?  Please do!

The question "why"

The Exempt Market – Why Is It Called That?A big question mark

The “Exempt Market” is a relatively new term for investors and many aren’t even sure what it means. In the past we referred to it as the “private” or “alternative” market and many of the companies involved were doing real estate-based investments.

It All Starts With The Prospectus

To explain the Exempt Market in simple terms – if a business in Canada wants to raise capital they generally do so through a prospectus offering.  Most people will have heard this term in the past and I’ve included a lengthier definition link for anyone who hasn’t.

Basically, a prospectus details everything about the business itself and the securities they plan to offer to the public.

Doesn’t Everyone Use a Prospectus If They Want To Raise Capital?

To sell securities under a prospectus is very costly and onerous and not all businesses want to raise capital in this manner. Smaller, private companies that are looking to expand may not want to take on the process, time frame or expense of creating a prospectus. There are also many companies that want to raise capital but have no interest in taking their business public.

So, If a Privately Owned Company Wants to Raise Capital but Doesn’t Want to File a Prospectus, What Can They Do?

 

They can rely on an “exemption” to the prospectus requirements.

The most common exemptions include:

 – Selling only to accredited investors

 – Selling only to family friends and business associates

 – Selling a minimum of $150,000.00 per transaction

 – Issuing an Offering Memorandum (which allows “eligible” investors to participate – more on that in another post)

To Sum Up

Companies that raise capital from investors using one of these prospectus “exemptions” make up the Exempt Market.

Want to watch a short 2 ½ minute video that sums up the Exempt Market completely?

Click here.

Shannon Pineau
Exempt Market Dealing Rep

E: shannon@whitehaven.ca C: 403-872-4010 TF: 1-855-872-4010

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shannonpineau.com

A sign that says private

Why Haven’t I Heard of the Exempt Market Before?

Private investor adjusting his tie

The Exempt Market (also known as the private or alternative market) has been around for centuries as people have always raised private capital to fund their developments.

Prior to the 2000’s though, this market was generally only known to the very wealthy and not available to average investors.

 

Common Exemptions Used in the Past

At that time, companies that didn’t want to complete a full prospectus in order to raise capital used an exemption from prospectus. Some examples include:

– Raising money from only friends and family

– Having a $150,000 minimum investment amount or

– Raising capital from accredited (high net worth) investors.

A Common Exemption Used Now

In the 2000’s, this all changed with increased use of another common exemption – the Offering Memorandum.

This document is a more condensed version of a prospectus and allows average investors to enter the Exempt Market with:

– Lower minimum investment amounts

– The ability to be an eligible instead of an accredited investor

All Of This Led To The Change in Terminology

I mentioned in a previous post that using one of these “exemptions” from a prospectus to invest in the private market is how the market got its name – The Exempt Market.

In addition, the changes that took place in the market in 2009 gave rise to a new entity called the “Exempt Market Dealer” or EMD, which further cemented the name.

So, to be fair, the official name THE EXEMPT MARKET has really only been around for about 9 years.

Very Little Advertising

Another reason you don’t see or read a lot of information about the Exempt Market is because it’s not well advertised.

When the private markets really gained traction in the early 2000’s, it was a completely new market to average or “eligible” investors and there were all kinds of newspaper advertisements to bring investors out to large presentations.

At that time, the high-risk nature of private investing was not well understood by most, largely because of its newness and also because there hadn’t yet been any high-profile failures. Once the recession hit though in 2008/2009, there were many failures, and this was also the time that the provincial regulators stepped in in a big way to ensure that the proper regulations were put into place to protect investors.

This included the removal of any potentially misleading statements in advertising and also complete transparency about the high-risk nature of the market.

 

So, while an ad from 2007 might say:

“Come on out Thursday night and find out how to earn 12% return on your investment with a short 2 year term”

 

An ad nowadays would say something like:

“Come on out on Thursday night and hear about a private investment that could potentially make a good rate of return but could also cause you to lose some or all of your money”

 

The second is definitely better and more truthful but isn’t very appealing to a mass audience.

So, what happens now is Investors go looking online for information on how to make higher returns and eventually come upon the term “Exempt Market”. Then they might think to themselves, hmmmm…I’ve never heard that term before and then come upon my blog post. From there, they might reach out to me to find out more because there has to be something that is great about private investing otherwise no one would do it. Right?

Right! There are lots of benefits – and risks too of course. You can keep reading all of my posts to learn more about private investing in Canada.

To Sum Up

The Exempt Market itself is not new but the terminology has changed and it is not well advertised. To learn more, you have to go looking and I’m very glad you found me and read my post. Thank you!

 

 

Shannon Pineau
Exempt Market Dealing Rep
E: shannon@whitehaven.ca C: 403-872-4010 TF: 1-855-872-4010

Facebook Twitter LinkedIn Instagram

shannonpineau.com

 

Wondering what’s available for private investment opportunities?  Here is a current list.

Looking for private Portfolio Management options?  I can help.

Would you like to contact me to learn more?  Please do!