Russian Roulette– further information

Here are some other links (FAIR, SIPA, Ken Kivenko) and other miscellaneous leverage references.  Please note that not all links relate to views that I would support: many are intended to show some of the dubious aspects of the promotion of leverage, so be warned.

I have had a response from FAIR Canada to one of my posts on leverage and note an excerpt from that response and links to a number of their documents below:

FAIR Canada

“Leverage continues to be a growing problem in our view.  In our letter to the CSA, we thought it was important to point out the linkages between the financial institutions lending the money to pursue these strategies (B2B Trust  being a prime example, but not the only one by any means) and the advisors who seek to gain through increased assets under management and/or greater embedded commissions and how this interaction buts consumers at risk:”

“FAIR Canada recommends that the existing contractual relationships between the mutual fund companies, financing companies and registrants need to be reviewed in order to address the systemic problem of investors being unsuitably placed in leveraged investment strategies. Some mutual fund companies have contractual arrangements with financing companies to provide preferential rates on investment loans to investors who purchase their family of mutual funds in order to generate greater sales of their own funds. Some registrants actively promote the use of leverage investing in order to generate increased commissions and assets under management. Registrants can recommend a leverage strategy to the client, process the loan application at their own office, and have the client invest in the mutual fund company’s mutual funds, all within the same day. This is cause for concern and requires examination from a retail investor protection perspective.”

“Here are links to two IIROC submissions on the issue along with a link to a letter to FSCO:”

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Why another article on borrowing to invest (Ken Kivenko)

SIPA Inc Five Year Review (2004) – some interesting leverage horror stories here.

Borrowing to Invest and Benefits (BNC) – another document that shows leverage in a good light but ignore investments management and transaction costs completely. 

IIROC

“Mr. Peirson recommended margin borrowing to some of his elderly clients. More specifically, he recommended the use or increase of margin borrowing to two clients (the “Two Clients”) for whom this was not suitable based on their age, income, net worth, and/or risk tolerance as recorded on their respective NAAFs.”

MFDA

The Two Types of RRSP Meltdown Strategies Part 1 of 3 (Wheredoesallmymoney go.com)

Example leverage disclosure statement – Burgeonvest Bick

To leverage, or not? Investment Executive article

OSC Borrowing to Invest (Investor Guide)

Solving the Present Crisis and Managing the Leverage Cycle (New York Fed)

Life-cycle Investing and Leverage: Buying Stock on Margin Can Reduce Retirement Risk

Manulife bank rates

B2B Bank Investment Loan Rates

TD Interests Rates &TD Investment Lending Services & loan application & 2 for 1 margined loans

BMO Rates

Investors Group Advises Leverage for 75-Year-Old Widow of Modest Means

Is borrowing to invest really a good idea (Scotia Mcleod)

Margin debt hits all-time high (Toronto Start July 2007)

Investors Rediscovering Margin Debt (WSJ)

NYSE Margin Debt At All-Time High: DB Puts It Into Perspective (Value Walk)

Prime Lending Rate or “Prime Rate” in Canada (CanEquity)

CIBC Historical Prime Rate

Why borrowing to invest (leveraging) is a good idea – an example of what I feel is inappropriate marketing of leverage.

RRSP Meltdown Strategy.

RRIF Meltdown Strategy

How RRSP meltdown strategies could jeopardize your retirement

The great escape

RRSP meltdowns should be used with caution

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