Helping Investors Look Before They Leap
NOTE TO EDITORS: This is the fifth of six news releases provided by the Nova Scotia Securities Commission in advance of Investor Education Week, April 25-May 1.
The deal, a limited partnership exempt from some securities rules, looks really win-win. You invest some money, garner immediate tax savings and look forward to great profits down the road. Then, the profits do not materialize, the money invested evaporates and perhaps even the tax savings aren't there.
Such investment losses are all too common, and that's why the Canadian Securities Administrators (CSA) has produced Look Before You Leap!, a new brochure alerting people to the risks of exempt market securities.
The exempt in the name refers to the fact that the securities are sold without a prospectus, a comprehensive disclosure document that must be filed with provincial and territorial securities regulators. Most exempt securities are low-risk investments such as government savings bonds or involve investments in which very qualified and experienced investors do not need the protections provided by a prospectus.
Unfortunately, other exempt securities, particularly limited partnerships, are all too commonly sources of problems. Buyers, who often have unrealistic profit expectations, are not suited to this type of investing. The securities are regularly sold by representatives who receive substantial commissions from each purchase.
These investments frequently sell by word of mouth between family, friends and business associates, another of the exemptions that regulators provide exempt market issuers. The assumption is that friends and relatives are less likely to inflict harm to those close to them. But certain exempt market securities are also sold to people who are required to be sophisticated investors. All too often, they are not.
Look Before You Leap! explains exempt market securities, why they exist, who can invest in them and what potential investors should know about them. It lists some questions to ask before buying such investments and shows where to get more information.
"Our goal is to get the unsophisticated investor to realize that this type of investment is probably not for them," said Nicholas Pittas, director of securities for the Nova Scotia Securities Commission. "It notes the downsides and urges people to investigate before they invest."
Look Before You Leap! is among the new educational material produced by CSA for Investor Education Week, April 25-May 1. The others are a brochure on buying mutual funds, an investment planning worksheet, and a poster that is an introductory guide to key types of securities.
This is the second annual Investor Education Week, which is designed to provide people with the tools needed to be aware and assess risks. CSA is composed of the 12 provincial and territorial securities regulators. One of its roles is to ensure people have the information needed to make informed investment decisions.
Look Before You Leap! is available at no charge from the Nova Scotia Securities Commission by phoning 902-424-7768 or by e-mailing [email protected] .
The Nova Scotia Securities Commission is the independent provincial government agency responsible for regulating trading in securities within the province.