Prevent nasty investment surprises
While you’re busy thinking about your health, your fitness level, your diet, you’re probably determined to pay more attention to your personal finances. Just like eating more healthful foods, getting regular checkups and exercising more often, taking some tedious but meaningful steps now can help prevent nasty surprises in investment plans down the road. It’s a preventive route many of us wish we’d taken before the current market cycle.
But regardless of how sound your financial planning, recent events have revealed serious shortcomings in our financial industry. Even as we make a commitment to better financial health, the way securities are regulated, in particular, could be standing in the way of our resolve. Indeed, it’s taken a painful crisis to reveal how badly the regulatory system needs an overhaul.
With industry players and the public now focused on reform, the government has appointed a “wise persons” committee to better regulate the securities industry. This commitment to reform could be the most positive fallout from the recent mind-blowing corporate scandals that saw so many investors fleeced by insidersThe panel recently wound up consultations and will soon make its recommendations.
Changes must put investors first
Industry players and individual investors have weighed in on the issue, with two main sides emerging. Some support the creation of a single regulator; others favour a “passport” system with regional co-operation among multiple jurisdictions and regulators. The objections to a single national regulator rest on the belief that regional interests are too diverse to be addressed adequately by one set of federal rules. Opponents also fear that more stringent rules will be too onerous and costly and could deter companies from seeking access to our capital markets.
It’s clear the current hodgepodge of federal, provincial and industry oversight isn’t working. For one thing, most people don’t even know where to turn when something goes wrong with their investments. What’s more, reforms must address the reluctance of Canadians to invest in financial markets that they perceive to be weighted against them. After all, the corporate scandals that routed investors from the markets in the first place were allowed to proliferate in a system that failed to spot trouble and didn’t seem to want to bother with penalizing cheaters.
It’s true that regulatory costs must be a consideration since it’s important to attract companies to our financial markets: as well as offering individual investors the opportunity to build wealth, our capital markets are also hugely important to companies looking for financing. So, the health of these markets is strongly correlated to our economic health.
But if lower costs mean fragmented rules, it may not be the solution. Investors are understandably mistrustful of the industry, and harmonization would go a long way to addressing their concerns. The arguments against the creation of a national securities regulator, for example, seem to ignore the fact that investors may feel they’re being put last once again. From this perspective, even the perception of a single set of clear and consistent rules could help restore investor confidence.
Make a commitment to financial health
But all the rules in the world won’t change the fact that, when it comes to making money in the markets, professionals – the companies issuing securities and the people selling them – have an undeniable advantage over small investors. We must work to lessen this advantage by pushing for fairer rules. But, above all, we must resolve to improve our own financial literacy so that we’re never sideswiped again.
Start by knowing your rights as an investor; understand what you are paying for in terms of financial advice and always bear in mind the interests of anybody selling you a financial product or service. Make a point of keeping abreast of developments in the industry. Consider taking a course on investing. Always read your account statements, and ask questions about any transactions you don’t understand.