Rewards of the Canadian Exempt Market
What are the advantages and disadvantages of Investing in the Exempt Market?
First of all, every investment carries a certain degree of risk. Products sold in the Exempt Market are no exception. By assuring that the investment you are looking at is being sold through a registered Exempt Market Dealer (‘EMD’), you can be assured however that the investment has been extensively researched and evaluated by the staff of the EMD. By law, the EMD must complete a long check-list of due diligence prior to evaluating whether promoting and selling the investment poses un-necessary risks to their clients as well as reputation risk to their firm. Basically, dealing only with investment products offered through an EMD adds another thick layer of due diligence for the investors.
Advantages of typical Exempt Market investments:
• The Exempt Market offers investors a broad spectrum of investments that are not publicly traded on stock exchanges. This means they are not subject to the emotional and daily volatility of the stock markets and can provide more predictable returns.
• Exempt Market Products often provide higher returns and greater diversification when compared with other, conventional investment products.
• Exempt Market products can provide investors with cash flow producing investments such as fixed income bonds, Trust Units, Preferred Shares & mortgage investments.
• Exempt Market products sometimes provide profit-sharing investments that allow an investor to participate in the overall profits of a project, without having the corresponding liability that comes with being a large shareholder.
• Due diligence on the investment is done for you through the Exempt Market Dealer. This doesn’t mean you shouldn’t do your own but it offers a level of confidence that the product has been thoroughly reviewed by professionals before it is offered to you.
Disadvantages of typical Exempt Market investments:
• Most exempt market securities are subject to resale restrictions; which means that you may not be able to sell them for (a portion) of the investment term. (this can also be seen an advantage, as these investments are not subject to emotional selling at the slightest negative news about the economy which can drastically lower the market value of shares)
• Even if there are no resale restrictions, there might not be a market to sell your securities. For example, you might not be able to find a purchaser or the purchaser might not be qualified to buy them from you. Generally, the issuers are under no obligation to help you sell your securities or buy them back from you if you run into hard times. (Some issuers provide an option to buy back your investment when the need arises)
How can you take full advantage of the Exempt Market and its protective legislation?
• Buy all of your Exempt Market Products through an Exempt Market Dealer. They are registered with their provincial Securities Commission and have diligence teams to thoroughly review each issuer and investment that they offer.
• Don’t invest money that you can’t afford to be without. Investments take time to produce returns.
• Perform your own due diligence before you invest; see if you are comfortable with the investment and the team offering it.