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Can Anyone Invest in Canada’s Exempt Market?

That’s a good question – and the answer is no.  Not everyone is allowed to invest there.

That usually surprises people a little as they think, “hmmm… it’s my money, I should be able to invest it however and wherever I want.”  That is not the case in Canada’s Exempt Market though as there are restrictions when it comes to who can invest there – and also how much.  There are also very good reasons for these restrictions, which I will explain a little further in this post.

Overall, in order to invest in the Exempt Market, you have to be either “eligible” or “accredited”.

You can read a previous post here to refresh yourself about these two terms and see where you fall. (The post will also tell you about investing possibilities if you are not eligible).  What it boils down to though, is that the majority of investors fall into the same category…

Eligible Investors

Here is a summary of an eligible investor in Canada:

  • Net worth of $400,000 or more
  • Annual income $75,000+ for the last 2 years and/or
  • Household annual income $125,000+ for the last 2 years

If you are “eligible”, it means that you can’t invest more than $100,000 in a 12-month period in the Exempt Market.

(Now, there are all kinds of caveats here because we would need to determine many things before you ever invested in the private markets, just to make sure it’s “suitable” for you.  There are also recommendations as far as your overall allocation – but I will touch on these items a bit more later.)

For now, and for illustrative purposes though, those are the requirements to be an eligible investor and if you fit the bill, you can (likely) invest.

Accredited Investors

“Accredited” investors have an interesting history in the Exempt Market – and particularly over the last 20 years when the private markets became a little more mainstream and retail.

Once again, you can refresh yourself about the terms in a previous post but suffice it to say that “accredited” investors have a higher net worth than “eligible” investors and generally have no restrictions regarding how much they can invest in the Exempt Market or how often.  The general premise being that they have the financial knowledge necessary to make wise investment decisions and can evaluate a private investment offering accordingly.

The truth of the matter is though, that just because someone has reached accredited status, doesn’t necessarily mean that they know anything at all about the Exempt Market or have any experience there.

Over the last decade, I would venture to say that there were many accredited investors that were over allocated into Exempt Market investments – because they didn’t fully understand the Exempt Market itself or the higher level of risk involved. 

It is only through time and experience, particularly because the Exempt Market is still so new to the majority of investors, that we can see the best recommendations to make when it comes to private investing.  That’s also why it’s important to find an experienced Dealing Representative to work with.  They will understand the importance of treating an accredited investor, with little or no Exempt Market experience, with care.

Is the Exempt Market Suitable for You?

If you are eligible or accredited, you can invest in the Exempt Market but that leads to the next step in the process which is – determining if these types of investments are “suitable” for you.  This would involve some discussion of course but I’ll give you a general sense of the information I would be gathering, including things like:

– Your age

  – Your time horizon to retirement (or maybe you’re already there)

  – Your risk tolerance

  – Your financial objectives overall

All of these things help me determine if higher risk, Exempt Market investments are suitable for you and your portfolio and – if they are – how much you should invest there.

How Much Should You Invest in the Exempt Market?

For eligible investors there are strong recommendations that you not invest more than 10% of your overall net financial assets in the Exempt Market.

This allocation can vary though depending on your own experience with private investing.  Newer investors might find that, once you understand the higher risk nature of the private markets, this percentage could be much lower, and a private investment might not be suitable at all for your portfolio.

You may also find that, if you have many years left until retirement, these investments can be an excellent choice to fill the higher risk/(potentially) higher return portion of your portfolio.

To Sum Up

I’m sure there are times when you reach the end of my posts and feel a little trepidation about making a private investment in the Exempt Market.  And that’s okay because my goal is to educate investors and it’s always best to start the conversation with absolute clarity about the risks involved.

It’s higher risk, it is difficult to get your money back before the end of the term because there is no secondary market to sell your securities and private companies do go through restructures and some fail all together.

There are definitely losses that have happened and there will be losses again in the future.

 

BUT…

 

Always Leave on a Positive Note…

There are also excellent private investment opportunities in the Exempt Market, with well above average returns and profit-sharing opportunities available.  With higher risk comes the potential for higher returns and there have been many successful projects and funds that have done very well for investors. 

The most important thing is to work with an experienced professional in the industry that works for a very reputable Exempt Market Dealer.  This will go a long way to helping you understand the private markets, helping you find excellent investment opportunities, helping you find strong issuers that offer the investments and having a high level of diligence done on these issuers.

All of these items plus a good understanding of the Exempt Market as a whole will go a long way to ensuring your own success in private investing!

 

And on that note, I’ll tell you why I feel the Exempt Market is “One of Your Best Options to Make Higher Returns“.

 

I appreciate you reading my post and please contact me anytime.  I would welcome the opportunity to talk further.

 

 

 

 

 

Shannon Pineau
Exempt Market Dealing Representative

E: spineau@sentinelgroup.ca
C: 403-872-4010

shannonpineau.com

P.S. “Who Can Invest in Canada’s Exempt Market” is a big topic and I didn’t touch on:

  • Eligibility requirements by province.
  • Foreign persons that live outside of Canada wanting to invest.

I will cover these topics in upcoming posts but you can always contact me to find out more.

This blog post is intended for information purposes only and does not constitute an offer to sell or a solicitation to buy securities. No securities regulatory authority or regulator has assessed the merits of the information herein or reviewed the information contained herein. This blog post is not intended to assist you in making any investment decision regarding the purchase of securities. Rather, the Trust has prepared an offering memorandum for delivery to prospective investors that describes certain terms, conditions and risks of the investment and certain rights that you may have. You should review the offering memorandum with your professional adviser(s) before making any investment decision. This blog post and the accompanying offering memorandum are intended for delivery only to, and participation in the investment is restricted to, investors to whom certain prospectus exemptions apply, as described in the offering memorandum.
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What Is One Of Your Best Options To Find Higher Returns?

Almost everyone, at some point in time, wants to make higher returns on their investments.

The Usual Suspects

For most average or “eligible” investors, investing generally involves one or more of the following:

• Setting up a RRSP or TFSA account at a bank and investing in mutual funds
• Investing in stocks through a broker
• Setting up a discount trading account and buying and selling your own stocks
• Having a pension at work
• Having a RRSP savings program through work

There is nothing wrong with any of these strategies. They all have pros and cons but ultimately, they are helping you save money towards your goal of a great retirement. That is excellent in my books.

With employer plans, they generally hold the reins and their goal is to do well for you, so you can likely just sit back and let that happen. For personal registered accounts, you have a lot of choices for what you can invest in and generally, at some point in time, investors go looking for higher returns if they are not achieving the results they are hoping for with mainstream investment products.

Starting The Search

When you start looking for higher returns on your money – and by higher returns, I generally mean in the 7% + range – there are all kinds of different options that you can pursue. Things like:

• Stock related opportunities like day-trading, options, futures, penny stocks etc. There is nothing wrong with this it just takes time to learn about and more often than not, novice investors lose money based on emotion or speculations that don’t pan out.

• Investment real estate. I really like this strategy because I think it’s an excellent one that can generate some great wealth over time. There is a big learning curve here though and being a landlord comes with challenges so there is a lot to consider. A sound strategy though if you can take the time to learn.

• Investments in real estate projects found in other countries. There is a lot of opportunity to be found in some of these places, but things can change in a hurry as regulation can be sparse and plans can be difficult to execute.

• Investing with close family, friends or business associates. This can often work out well for accredited investors that are in the know and have larger sums to invest in sound projects. For the average investor though, investing with a smaller player, these often do not go as planned. Rather than the double digit returns that were promised, there are often strained relations instead.

• Multi-level marketing. This usually works out well for the person at the top and the super social. For most people though, it’s hard to make it off the bottom rung and easy to alienate friends and family.

• Get rich quicker scenarios. These come in all shapes and sizes and are always lurking out there for anyone that is searching out ways to make more money. Investors always need to be wary – particularly if something seems too good to be true.

So then where can you find investment opportunities that can possibly give you higher returns?

In my opinion – you should look straight to Canada’s Exempt Market and here are the reasons why:

• From a risk reward perspective – it is higher risk and that’s why the prospective returns are so much higher. But here, those risks are very transparent and well explained.

• It’s well structured and has changed and improved over the years to give investors more safeguards. To learn more about how the market has evolved to get to this point – click here.

• In order to offer an investment to clients, issuers have to be accepted by an Exempt Market Dealer. The EMD conducts a rigorous diligence process on the issuer to ensure they are a strong company with a sound plan and a great likelihood of success.

• Issuers that I have offered in the past that have paid out their investors have averaged approximately 8-10% annual return over the life of the investment.

• I am here for you. I’ve worked in the private investment markets since 2007 – I will make sure you understand everything there is to know about the Exempt Market and then help you decide if it is the right fit for you.

But is it Guaranteed?

So with all of these benefits – there must be some guarantee of success right?

NO!

There is absolutely no guarantee. It is a higher risk market and even with all of these safeguards, things can and do go wrong and investors can definitely lose money. It’s important to discuss all of this in the beginning to ensure that the Exempt Market is a good fit and also ensure you allocate the proper amount there.

On the other side of the coin though (and the reason investors continue to invest in the private markets), if you are well diversified across a few quality issuers, there is excellent opportunity for you to achieve the returns you are searching for. When we meet in the future, we’ll look at issuer results to date which will help to illustrate all of this for you.

There you have it. There are a lot of options out there to try and make higher returns on your investment but if you are looking for one that you can learn about easily and have a Dealing Rep that will help you every step of the way – you should definitely consider the Exempt Market.

 

I really appreciate you reading my post!  If you would like to talk further, with no obligation, please contact me today.

 

 

 

 

 

Shannon Pineau
Exempt Market Dealing Representative

E: spineau@sentinelgroup.ca
C: 403-872-4010

shannonpineau.com

 

This blog post is intended for information purposes only and does not constitute an offer to sell or a solicitation to buy securities. No securities regulatory authority or regulator has assessed the merits of the information herein or reviewed the information contained herein. This blog post is not intended to assist you in making any investment decision regarding the purchase of securities. Rather, the Trust has prepared an offering memorandum for delivery to prospective investors that describes certain terms, conditions and risks of the investment and certain rights that you may have. You should review the offering memorandum with your professional adviser(s) before making any investment decision. This blog post and the accompanying offering memorandum are intended for delivery only to, and participation in the investment is restricted to, investors to whom certain prospectus exemptions apply, as described in the offering memorandum.
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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.

Another question you may have on your mind is “Why Haven’t I Heard of the Exempt Market Before?”  Click through to find out!

 

I really appreciate you reading my post!  If you would like to talk further, with no obligation, please contact me today.

 

 

 

 

Shannon Pineau
Exempt Market Dealing Representative

E: spineau@sentinelgroup.ca
C: 403-872-4010

shannonpineau.com

 

This blog post is intended for information purposes only and does not constitute an offer to sell or a solicitation to buy securities. No securities regulatory authority or regulator has assessed the merits of the information herein or reviewed the information contained herein. This blog post is not intended to assist you in making any investment decision regarding the purchase of securities. Rather, the Trust has prepared an offering memorandum for delivery to prospective investors that describes certain terms, conditions and risks of the investment and certain rights that you may have. You should review the offering memorandum with your professional adviser(s) before making any investment decision. This blog post and the accompanying offering memorandum are intended for delivery only to, and participation in the investment is restricted to, investors to whom certain prospectus exemptions apply, as described in the offering memorandum.
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Top 5 Exempt Market Quotes

As I attempted to gather some quotes about the Exempt Market, it turns out – there aren’t any!  Instead, here are some great quotes about private equity which, fortunately, is what the Exempt Market is all about.  Enjoy!

 

 

 

 

 

 

 

 

 

If you’d like to talk more about the Exempt Market and how private equity opportunities can help diversify your portfolio – please contact me today!

 

 

 

 

 

Shannon Pineau
Exempt Market Dealing Representative

E: spineau@sentinelgroup.ca
C: 403-872-4010

shannonpineau.com

This blog post is intended for information purposes only and does not constitute an offer to sell or a solicitation to buy securities. No securities regulatory authority or regulator has assessed the merits of the information herein or reviewed the information contained herein. This blog post is not intended to assist you in making any investment decision regarding the purchase of securities. Rather, the Trust has prepared an offering memorandum for delivery to prospective investors that describes certain terms, conditions and risks of the investment and certain rights that you may have. You should review the offering memorandum with your professional adviser(s) before making any investment decision. This blog post and the accompanying offering memorandum are intended for delivery only to, and participation in the investment is restricted to, investors to whom certain prospectus exemptions apply, as described in the offering memorandum.
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The Exempt Market – Finding “Opportunities” For Your Portfolio

Hello, I’m Shannon Pineau…

and I’m a Dealing Representative with Sentinel Financial Management Corp. – 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 the Exempt Market in Canada. And that’s just fine because that’s what I’m here for – to tell you all about it.

When you start looking for options to fill the higher risk “opportunity” portion of your portfolio – you’ll soon find that there are MANY options to choose from.  From higher risk stock market plays, to foreign real estate investments, to network marketing, to investing in a friends & family venture, to various “get rich quick” schemes…there are no end to the possibilities.  Unfortunately,  the majority of investors don’t have the time or the expertise to properly investigate these opportunities which can often lead to losses and an overall bad taste for higher risk investments.

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 the Exempt Market – 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 the Exempt Market 101 category. For those that are new to private investing overall, 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.

If  a higher risk/potentially higher reward investment is suitable for your portfolio – my goal will be to give you all of the information you need to consider the Exempt Market.

Armed with this information:

a) you can find those higher returns
b) you 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!  If you want to continue on through all of my Exempt Market posts you can click on to the next one, “The Exempt Market – Why Is It Called That?”

I am very happy to have this strategy to offer to my clients.  If you want to talk more specifically about the Exempt Market issuers that I offer through my EMD, Sentinel Financial Management Corp. – contact me.

Thanks for reading!

 

 

 

 

Shannon Pineau
Exempt Market Dealing Representative

E: spineau@sentinelgroup.ca
C: 403-872-4010

shannonpineau.com

This blog post is intended for information purposes only and does not constitute an offer to sell or a solicitation to buy securities. No securities regulatory authority or regulator has assessed the merits of the information herein or reviewed the information contained herein. This blog post is not intended to assist you in making any investment decision regarding the purchase of securities. Rather, the Trust has prepared an offering memorandum for delivery to prospective investors that describes certain terms, conditions and risks of the investment and certain rights that you may have. You should review the offering memorandum with your professional adviser(s) before making any investment decision. This blog post and the accompanying offering memorandum are intended for delivery only to, and participation in the investment is restricted to, investors to whom certain prospectus exemptions apply, as described in the offering memorandum.
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Investing: Keeping It Simple At Any Age – An 80/20 Approach

When it comes to investing, I like to keep things simple.  I understand that the majority of people don’t have a lot of time to dedicate to their finances and so it’s important, in my opinion, to follow some key fundamentals.  These include:

– Finding quality investment products that you understand and are comfortable with.

– Finding strong investments that can offer solid rates of return.

– Growing your wealth through regular contributions.

– Preserving your wealth when you start to draw on it through retirement.

– Finding an advisor that you trust and feel comfortable with to help you with your investment goals.

THE 80/20 PORTFOLIO

When I first meet with clients, I generally start out with an 80/20 approach to investing.  With 80% being the Foundation of your portfolio and 20% being the Opportunity portion of your portfolio.

 

These percentages can change and fluctuate depending on many factors – like your age, time horizon to retirement, risk tolerance and financial objectives –  but it’s a good starting point.   Let’s look at this a little closer.

The Foundation (80%)

The foundation of a portfolio is generally made up of stable, consistent investments that are lower risk in nature.  The foundation is an anchor that provides a sense of stability and direction for a portfolio.  Investors have a higher comfort level here so they take larger, more significant positions.

When I meet with a new client, the foundation portion of their portfolio may be higher than an 80% allocation if they are older or already in retirement – and it might be less than 80% if they are younger and have more time for growth.

The Opportunity (20%)

The opportunity portion of a portfolio can be more aggressive and can take on higher risk for potentially higher returns.  The allocation to the opportunity portion of your portfolio can also fluctuate depending on some of the factors mentioned above.

The “opportunity” is also where I come in – with higher risk/higher reward investment offerings found in Canada’s Exempt Market – and I am happy to tell you more anytime you like!

I really appreciate you reading my post and if you would like to talk further, with no obligation, please contact me today.

 

 

 

 

Shannon Pineau
Exempt Market Dealing Representative

E: spineau@sentinelgroup.ca
C: 403-872-4010

shannonpineau.com

 

This blog post is intended for information purposes only and does not constitute an offer to sell or a solicitation to buy securities. No securities regulatory authority or regulator has assessed the merits of the information herein or reviewed the information contained herein. This blog post is not intended to assist you in making any investment decision regarding the purchase of securities. Rather, the Trust has prepared an offering memorandum for delivery to prospective investors that describes certain terms, conditions and risks of the investment and certain rights that you may have. You should review the offering memorandum with your professional adviser(s) before making any investment decision. This blog post and the accompanying offering memorandum are intended for delivery only to, and participation in the investment is restricted to, investors to whom certain prospectus exemptions apply, as described in the offering memorandum.
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Using Registered Funds To Invest in the Exempt Market

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 an Exempt Market  investment opportunity.  This is not the case as the funds are transferred between registered 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.  Clients can now open a self-directed registered account online at Olympia Trust.

– 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 an Exempt Market 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?

In the Exempt Market, 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 the Exempt Market is suitable for a portion of your portfolio.

 

 

 

 

Shannon Pineau
Exempt Market Dealing Representative

E: spineau@sentinelgroup.ca
C: 403-872-4010

shannonpineau.com

 

This blog post is intended for information purposes only and does not constitute an offer to sell or a solicitation to buy securities. No securities regulatory authority or regulator has assessed the merits of the information herein or reviewed the information contained herein. This blog post is not intended to assist you in making any investment decision regarding the purchase of securities. Rather, the Trust has prepared an offering memorandum for delivery to prospective investors that describes certain terms, conditions and risks of the investment and certain rights that you may have. You should review the offering memorandum with your professional adviser(s) before making any investment decision. This blog post and the accompanying offering memorandum are intended for delivery only to, and participation in the investment is restricted to, investors to whom certain prospectus exemptions apply, as described in the offering memorandum.
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