Q&A With Gordon Pape: IPOs Leave DIY Investors Out in the Cold

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Q – We are retired and manage our own investments through an online brokerage investment service with one of the major banks. For the most part, we have been quite successful and feel we have enough knowledge to continue to do so. We do find we are missing out on some opportunities, though, and would like to understand our options. We receive email alerts of “new issues” but have found that any of the better options (e.g. two Canadian bank rate reset preferred share options that were issued today) were closed before we could even get online to make a purchase. I can recall someone referring to these announcements as “tombstones” by the time they reach the consumer, and it seems they are correct. Are we limited to using a broker and paying a management fee on all of our funds in order to gain access to such services? This seems counterintuitive, as any gains we would make in this case would be consumed by fees. – Mary M.

A – Unfortunately, do-it-yourself investors are usually left out in the cold when it comes to initial public offerings (IPOs), especially hot ones. The underwriters allocate the shares to brokers, with preference given to those within their own firms. The brokers in turn offer positions to their clients. If the new issue is in demand, the allocation is usually rationed and only the best customers get a chance to buy in. The only time a DIY investor might get a crack at an IPO is if the issue fails to sell out quickly. That usually means it’s a dud and you don’t want it anyway.

You can advise your online broker of your interest in new IPOs but don’t expect much to happen. If you really want to participate you would need to open an account with an active advisor, preferably at a firm that does a lot of underwriting. RBC Dominion Securities and CIBC Wood Gundy are two examples. – G.P.

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