While the MFDA continues to police advisors using leverage inappropriately, SRO suggests things aren’t nearly as bad as they once were.
While the MFDA continues to police advisors using leverage inappropriately, SRO suggests things aren’t nearly as bad as they once were.
WP recently ran an article about a PEI mutual fund salesperson who was banned from performing any securities related activities for MFDA members for a period of 10 years. The veteran advisor used a derivation of the Smith Manoeuvre to generate almost $1.4 million in mutual fund sales from a total of 15 different clients.
The move was profitable for the former Investia Financial Services mutual fund salesperson who likely netted more than $10,000 annually from the leveraged investment scheme.
This level of abuse got WP wondering whether leveraged investment schemes such as the one run by Lloyd Snyder are more or less prevalent today than in the past. MFDA Managing Director of Enforcement, Hugh Corbett, was kind enough to take the time Thursday to address the issue.
“You can fancy it up any way you want,” says Corbett, “but at the end of the day you’re telling investors to borrow against their house and invest those proceeds… and that’s really what gets them in trouble.”
Snyder’s version of the Smith Manoeuvre ultimately relied on the willingness of clients to borrow against their homes. Corbett says the MFDA has little tolerance for deceptive practices by the advisors it licenses.
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“Every once in a while we will see someone using the slogan ‘Make Your Mortgage Tax Deductible’ and we will jump in and intervene and get them to withdraw that kind of marketing material because any investment loan you can deduct the interest payable… In our view we [MFDA] think this is misleading to claim that you’re making your mortgage tax deductible; you’re still paying your mortgage and getting the same interest tax-treatment as you would with any other investment loans.”
This particular case centred around a two-year period between 2005 and 2007 prior to the recession.
Since then it seems advisors and investors are both more reluctant to use leverage to any great degree. Add to this greater scrutiny from both the regulatory and dealer level and it’s clear leveraging schemes such as the Smith manoeuvre aren’t the darlings they once were.
“We have seen a decrease in the prevalence of these types of manoeuvres. From an enforcement perspective, while we haven’t taken our foot off the gas by any means, we are not seeing the same frequency and incidence of this kind of leveraging (the various maneuvers, encouraging investors to tap into their home equity) as was apparently occurring pre-2008.”
It seems you can teach an old dog new tricks after all.
WP recently ran an article about a PEI mutual fund salesperson who was banned from performing any securities related activities for MFDA members for a period of 10 years. The veteran advisor used a derivation of the Smith Manoeuvre to generate almost $1.4 million in mutual fund sales from a total of 15 different clients.
The move was profitable for the former Investia Financial Services mutual fund salesperson who likely netted more than $10,000 annually from the leveraged investment scheme.
This level of abuse got WP wondering whether leveraged investment schemes such as the one run by Lloyd Snyder are more or less prevalent today than in the past. MFDA Managing Director of Enforcement, Hugh Corbett, was kind enough to take the time Thursday to address the issue.
“You can fancy it up any way you want,” says Corbett, “but at the end of the day you’re telling investors to borrow against their house and invest those proceeds… and that’s really what gets them in trouble.”
Snyder’s version of the Smith Manoeuvre ultimately relied on the willingness of clients to borrow against their homes. Corbett says the MFDA has little tolerance for deceptive practices by the advisors it licenses.
#pb#
“Every once in a while we will see someone using the slogan ‘Make Your Mortgage Tax Deductible’ and we will jump in and intervene and get them to withdraw that kind of marketing material because any investment loan you can deduct the interest payable… In our view we [MFDA] think this is misleading to claim that you’re making your mortgage tax deductible; you’re still paying your mortgage and getting the same interest tax-treatment as you would with any other investment loans.”
This particular case centred around a two-year period between 2005 and 2007 prior to the recession.
Since then it seems advisors and investors are both more reluctant to use leverage to any great degree. Add to this greater scrutiny from both the regulatory and dealer level and it’s clear leveraging schemes such as the Smith manoeuvre aren’t the darlings they once were.
“We have seen a decrease in the prevalence of these types of manoeuvres. From an enforcement perspective, while we haven’t taken our foot off the gas by any means, we are not seeing the same frequency and incidence of this kind of leveraging (the various maneuvers, encouraging investors to tap into their home equity) as was apparently occurring pre-2008.”
It seems you can teach an old dog new tricks after all.
