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Hope for small dealers in industry reforms – Investment Executive



However, with the prospect of significant reforms at hand, the fortunes of small dealers may be set to improve.

Ian Russell, president and CEO of the Investment Industry Association of Canada (IIAC), says the investment industry at large is facing renewed fragmentation that could see a resurgence in the number of small and mid-size retail dealers.

The expansion of carrying broker services at larger independent dealers facilitates the operations of small firms, Russell wrote in a recent column for Investment Executive. And ongoing structural changes within bank-owned firms may push more financial advisors to seek their fortunes in smaller shops.

Perhaps most important, the Canadian investment business faces the prospect of regulatory reforms that could foster the growth of new, independent firms.

The retail investment business appears to be in relatively good health. Firms’ operating profits have held up this year despite economic turmoil. According to data from the IIAC, profits in the retail segment were up by 25.3% in the second quarter compared with the first quarter, and net profits rose by more than 40.5% as revenue edged higher and expenses declined.

This resilience comes on the heels of several years of strong financial results on the retail side of the investment business. In 2018 and 2019, the retail brokerage channel accounted for 18% of overall industry revenue — levels not seen since the years leading up to the global financial crisis — and the channel’s share of overall industry operating profit is back to pre-2008 levels. Between 2016 and 2019, the retail channel’s profits essentially doubled.

Over this same period, the retail channel’s head count continued to grow, with total employment nearing 15,000 versus less than 12,000 in 2016. Most of that employment growth is at introducing brokers.

Against this backdrop, the investment business is facing initiatives that seek to rein in compliance costs and foster competition — objectives that should create a more fertile environment for new firms, as compliance burdens tend to fall more heavily on them.

A 2018 study from the Federal Reserve Bank of St. Louis examined the effects of scale on compliance costs, concluding that there are significant economies of scale available in compliance. While the study looked at banks rather than at brokerage firms, it found that compliance costs at banks as a proportion of overall expenses were about double for smaller firms compared with larger institutions. Regulatory reforms that aim to reduce compliance costs benefit smaller firms the most, the study concluded.

For the Canadian investment industry, one reform opportunity is to overhaul self-regulatory organizations (SROs). The consultation period for the Canadian Securities Administrators’ (CSA) review of the SRO structure closed on Oct. 23.

While substantive changes to that structure is likely to take some time, SRO reform could significantly alter the operating environment in the investment industry, particularly for small firms.

For example, the Investment Industry Regulatory Organization of Canada (IIROC) estimates that a merger with the Mutual Fund Dealers Association of Canada (MFDA) would generate in excess of $500 million in benefits over 10 years.

An analysis of IIROC’s proposals conducted by Deloitte LLP estimates that while the bulk of the savings would flow to the large dual-platform dealers that dominate the industry, small firms collectively would enjoy tens of millions in cost savings as a result of an IIROC/MFDA merger, and mid-size firms would see around $100 million in savings.

According to Deloitte’s report, the projected benefits of SRO consolidation would come from savings on systems and technology, staffing and other administrative costs. The predicted savings, along with an end to the bifurcation between investment dealers and fund dealers would, in turn, create an easier path for new firms entering the business.

The CSA may favour a IIROC/MFDA merger or the CSA may have a broader overhaul of self-regulation in mind. Such an overhaul could break down barriers for portfolio managers and exempt-market dealers in addition to the regulatory walls between fund dealers and investment dealers.

Either way, the purpose of examining the SRO landscape is to address an array of concerns, including duplication and inefficiencies in the existing system. Assuming policy-makers follow through with reforms, the regulatory environment should become more hospitable to new firms and to increased industry innovation.

The SRO review is taking place alongside the work of the Ontario Capital Markets Modernization Taskforce. The task force is slated to produce its final recommendations by the end of the year, and is contemplating changes such as prohibiting banks from bundling their lending and capital-markets businesses, which currently drives investment business to bank-owned dealers at the expense of independent firms. The task force also is considering requiring bank-owned dealers to open their product shelves to independent investment products and mandating the use of “open data” in the securities industry to facilitate fintech innovation.

In addition, the task force is calling for a single SRO.

At the same time, the Ontario Securities Commission (OSC) has made several changes to regulatory requirements and to its own operations as part of its burden-reduction initiative, which should curb costs for dealers.

The OSC’s changes include streamlining compliance reviews, allowing for more flexible oversight arrangements and providing firms with easier access to information. These measures aim to ease some of the bureaucratic hassles that come with operating an investment dealer and should help small dealers the most.

Reports of the death of the independent investment dealer may have been greatly exaggerated. If policy-makers deliver on promised reforms, independent dealers may soon be staging a comeback.

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Investment regulator accuses Gary Ng of fraud – The Globe and Mail



The former owner of Vancouver-based investment bank PI Financial Corp. is facing accusations of fraud after allegedly falsifying documents and creating fake brokerage accounts to borrow approximately $172-million, part of which he used to purchase PI Financial.

Gary Ng, co-founder of Winnipeg-based broker Chippingham Financial Group Ltd., acquired PI Financial for $100-million in 2018 through a personal holding company. He financed the all-cash deal with a pair of loans – worth $80-million and $20-million – that were supposedly secured against assets he claimed he held in his own investment accounts. He borrowed an additional $72-million in 2019 and 2020 for separate deals.

According to a statement of allegations filed by the Investment Industry Regulatory Organization ahead of a disciplinary hearing, Mr. Ng greatly inflated his net worth to fool three lenders: an unnamed U.S. “investment firm,” an unnamed Canadian “asset management firm,” and an unnamed Canadian “private company.”

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He altered documents to put his name on corporate client accounts that he did not own and created other fake accounts and account balances, which were used as collateral for the loans, IIROC alleges. Mr. Ng’s business partner Donald Metcalfe assisted in the ruse, IIROC alleges.

At one point, Mr. Ng e-mailed an account balance to a lender that purported to show $90-million worth of marketable securities. In reality there was only $4 in the account, IIROC alleges.

“Mr. Ng and Metcalfe perpetrated a fraudulent scheme by deceiving lenders into providing them with millions of dollars in loans in reliance on falsified and fictitious documentation purportedly evidencing substantial financial assets as security when this was not true,” IIROC said in the statement of allegations.

When reached by phone, Mr. Ng declined to comment. The Globe was unable to reach Mr. Metcalfe for comment.

The IIROC hearing against Mr. Ng and Mr. Metcalfe is scheduled to begin in January. The pair face fines of up to $5-million per offence and a permanent ban from participation in the Canadian securities market, among other potential penalties. The allegations have not been proven.

PI Financial, a mid-sized investment bank with more than 300 employees, is no longer owned by Mr. Ng. In July the company announced that its ownership was being transferred to a joint venture controlled by H.I.G. Capital and RCM Capital Management. The company did not give any explanation for the sale at the time.

IIROC says that PI Financial reported Mr. Ng and Mr. Metcalfe’s fraudulent behaviour after becoming aware of it in late January, 2020.

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“We identified unusual correspondence during an unrelated document request,” PI Financial said in a statement about the allegations.

“[We] immediately alerted our regulators, and have been co-operating with IIROC on its investigation. None of the alleged misconduct was related to the firm’s capital or client accounts, and throughout this entire period we have been serving our clients as usual – there has been no impact on our operations whatsoever,” the firm said.

Mr. Ng and Mr. Metcalfe, who served as chairman and vice-chairman of PI Financial, respectively, resigned from the company in February. Both have since failed to show up for scheduled interviews with IIROC and face additional counts of failing to co-operate with investigators.

Over the past several years, 36-year-old Mr. Ng had presented himself to investors and the media as a financial prodigy. As IIROC puts it: “[he] represented himself to others as an extremely successful businessperson who created enormous personal wealth through highly successful technology, real estate and manufacturing investments in Canada and China.”

Mr. Ng co-founded Chippingham Financial in Winnipeg in 2012. In 2018, he began acquiring other financial services firms through his holding company, Ng Group, including Montreal-based Rothenberg Capital Management Inc. and PI Financial.

During its investigation, IIROC found no evidence that PI Financial clients had suffered losses as a result of the alleged fraud.

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“There has been no suggestion that PI was remiss in its procedures, however, in light of the issues raised in this investigation we undertook a review of our internal controls,” PI said in a statement. “That review concluded that PI’s controls and governance were and are not deficient. We continue to cooperate with regulators in this matter.”

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How To Invest Money Based On Advice From Warren Buffett – Forbes



How to invest money for beginners can be confusing at best. It’s an important decision with long-term consequences, and everybody seems to have an opinion on the “best” approach. In this article we’ll turn down the noise and listen to the one voice we can trust—Warren Buffett.

Wall Street is noisy. It’s like a craps table in Las Vegas surrounded by conference attendees who have lost count of how many drinks they’ve had.

You’ve got investing apps designed to do one thing—get you to trade. Trade anything. Options, crypto, gold, stocks. They don’t care. As long as you keep trading, the app owners get one step closer to a BDB—a billion-dollar buyout.

You’ve got the media designed to do one thing—get you to watch, listen or click. From pretending that the daily stock market news matters to honking horns or flashing the ticker, they’ll do anything to keep your attention. It keeps the advertising dollars flowing.

You’ve got advisors designed to do one thing—manage your money for a “small” fee. To justify their costs, they’ll create a Rube Goldberg portfolio so complex it makes fluid dynamics seem like child’s play. Add in a little fear-mongering about the next stock market crash, and they’ve convinced you to fork over a percentage of your wealth for the rest of your life.

Warren Buffett on Investing

And then you have Warren Buffett. He eats at McDonalds and drinks Cherry Coke every day. He lives in the same house he bought during the Eisenhower administration. Here’s what he has to say about how both institutions and individuals should invest:

“Most investors, both institutional and individual, will find that the best way to own common stocks is through an index fund that charges minimal fees. Those following this path are sure to beat the net results (after fees and expenses) delivered by the great majority of investment professionals.”

This advice is not exactly the kind of thing to make drunken craps players cheer. It’s hard to imagine a stock prognosticator blaring a horn on TV after repeating Mr. Buffett’s advice.

On the other hand, it is the best advice you’ll ever get if your goal is to build wealth. And the good news for new investors is that it’s extremely easy to implement.

Here are a few simple investing strategies that anybody can use to implement Mr. Buffett’s investing advice.

2-Fund Portfolio

In his 2013 letter to Berkshire Hathaway shareholders, Mr. Buffett described how he has advised trustees to manage the money he will leave to his wife: “Put 10% of the cash in short-term government bonds and 90% in a very low-cost S&P 500 index fund. (I suggest Vanguard’s.) I believe the trust’s long-term results from this policy will be superior to those attained by most investors – whether pension funds, institutions or individuals – who employ high-fee managers.”

As Steve Jobs believed, simplicity is the ultimate sophistication. Investors can implement the above portfolio with just two Vanguard funds:

  • Vanguard 500 Index Fund Admiral Shares (VFIAX)
  • Vanguard Short-Term Treasury Index Fund Admiral Shares (VSBSX)

3-Fund Portfolio

The one thing missing from the 2-Fund Portfolio is direct exposure to international stocks. Some might argue that such exposure is unnecessary. Most of the companies in the S&P 500 index do business all over the world. For those, like myself, who prefer to have more investment in international markets, the 3-Fund Portfolio is a good option.

It’s a simple asset allocation plan consisting of just three asset classes, U.S. stocks, foreign stocks, and U.S. bonds. This portfolio can easily be implemented with just three mutual funds.

As an example, one could implement this investment plan at Vanguard with the following funds:

  • Vanguard Total Stock Market Index Fund (VTSMX)
  • Vanguard Total International Stock Index Fund (VGTSX)
  • Vanguard Total Bond Market Fund (VBMFX)

You can find an excellent description of this simple investment plan at

Target Date Retirement Funds

A target date retirement fund enables investors to get instant diversification with just one mutual fund. These funds take your contributions and split them among multiple stock and bond mutual funds. In addition, there is no need to rebalance your investments as you get closer to retirement. Target date retirement funds adjust the allocation between stocks and bonds as the investor nears retirement.

These types of funds are readily available in most 401(k) and other workplace retirement accounts. They are not all created equal, however. Some cost more than others, and the investment strategies vary from one fund family to the next. As a result, it’s important to check the expense ratio of the fund before investing.

Final Thoughts on How to Invest

As one gains more investing experience, he or she may choose to move away from the above options. Some like to take a more active role, particularly as they study and learn more.

The above options, however, are an excellent way to get started as an investor. And these strategies will also serve well those that chose to stick with them over a lifetime of investing.

There is more to investing than just picking a few funds. First, there’s the question of whether to invest in a taxable account or retirement account. And if one chooses a retirement account, there’s still the question of which type of retirement account. There’s also the question of how much to invest and where to open an investment account.

You’ll find these questions covered in detail in this video:

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Europe's Biggest Utility Unveils $190 Billion Investment Plan – BNN



(Bloomberg) — Enel SpA, Europe’s biggest utility, is set to invest 160 billion euros ($190 billion) over the next 10 years on a bet that demand for green energy and electrification will surge globally.

Under Chief Executive Officer Francesco Starace, Enel has sought to ride the accelerating shift to a low-carbon world, committing vast sums of money to expanding its renewable power, networks and energy-efficiency divisions. Its bold investment plan comes as competition for new projects intensifies, with utilities now vying with oil majors pushing more aggressively into the sector.

Enel plans to invest about 40 billion euros over the next three years, driving annual profit gains of as much as 10% over the period, the Rome-based company said Tuesday. Almost half of that spending will be channeled to renewable energies.

It’s a “monster investment” program and is above expectations, Roberto Letizia, an analyst at Equita SIM SpA, said in a note.

Enel’s shares jumped as much as 3.3% in Milan, the most in two weeks. The stock traded up 3.2% at 8.34 euros as of 11:39 a.m. local time, extending its gain this year to 18%.

The utility will offer shareholders a guaranteed fixed dividend with a target of 43 euro cents a share in 2023, the strategic plan shows. An increase in the use of so-called sustainable finance — which will account for about half of total gross debt in 2023 — will allow Enel to lower its cost of borrowing.

Open Fiber

The company made no mention Tuesday of any decision on the potential sale of its 50% stake in telecommunications company Open Fiber SpA. The Italian government, which owns about 24% of Enel, has pressed the utility to sell its holding, which has attracted a 2.65 billion-euro bid from Macquarie Group Ltd.

Starace did however touch on acquisition opportunities, saying Enel would favor distribution networks over generation assets.

“We keep this approach open,” he said during a presentation. If an opportunity arises, “we think this is the right time.”

Enel said almost half of its investments will be directed to developing infrastructure and networks, while the rest will be allocated to power generation. The company expects to have about 120 gigawatts of installed capacity by 2030, almost three times more than the current level.

Enel forecast an increase of 8% to 10% a year in adjusted net income through 2023. Adjusted earnings before interest, taxes, depreciation and amortization will rise 5% to 6% annually, reaching as much as 21.3 billion euros in 2023.

©2020 Bloomberg L.P.

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