#ASKASC – Q&A PAGE

Wondering how to check your adviser’s registration? Curious about RRSP contribution limits? You have the questions, CheckFirst has the answers! From October 3 to October 31 we’re answering all of your questions related to investing.

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Q&A – latest questions

1. Will TFSAs be income taxed?

Typically, interest, dividends or capital gains earned from investments in a TFSA are not taxable, either while held in the account or when withdrawn. However, there are some circumstances where taxes may be payable with respect to a TFSA. Check out the Government of Canada’s page on Tax Payable on TFSAs to determine when taxes are applicable or for more general information on TFSAs.

2. Can RESP’s be used by multiple people?

There are two types of RESP’s – individual and family plans. With either type you can apply for the Canada Education Savings Grant (CESG), and other government grants. An individual plan has one beneficiary while a family plan can have multiple. Whichever plan you choose, ensure that you understand the restrictions and withdrawal terms of each account type. Learn more about the different types of plans here.

3. I want to reduce my chances of losing money to a fraudulent investment. How do I know which ones are legitimate?

Asking the right questions can help you make an informed decision and help to determine whether an investment opportunity is right for you. Find out if the individual or company offering you an investment is registered by checking their registration here. You can also look up current or previous enforcement actions to see if there is any disciplinary history for an individual or company offering you an investment.

4. How can investing in stocks help prepare for retirement? What kind of risk should be considered?

While we can’t advise you on how best to prepare for retirement, we can advise of the risks of investing. Risk is one of the most overlooked and poorly understood areas of the investing process. There are many types of risk that can affect the performance of investments, including political, economic and environmental. Your investment goals should help you determine how much risk you should take. Learn more about investing here.

5. What regulatory steps are being taken to improve transparency regarding how fees and funds are managed?

Recently, we’ve engaged in consultations with investors and industry on the option of discontinuing embedded commissions and on targeted reforms that enhance the client-registrant relationship, check out the CSA Consultation Paper 81-408 Consultation on the Option of Discontinuing Embedded Commissions. You can always find recent regulatory developments listed here.

6. What’s the difference between an advisor and an adviser? Why the difference?

Generally anyone, regardless of what title they use, who is in the business of selling an investment that is a security (i.e. a mutual fund, share, stock, bond, etc.) must be registered under the Securities Act (Alberta). Persons who are registered under the Securities Act (Alberta) are licensed to sell you products sold by the investment firm they work for, and are obligated to provide you with advice on the suitability of those products for your circumstances. You can check registration here.

7. How do I report suspected insider trading?

If you have serious concerns about potential breaches of the Securities Act (Alberta) you can file a complaint with the ASC. Please include enough detail so we can determine what actions might be necessary. You can find more information and the complaint form here.

8. What is the difference between preferred shares and common stock?

Preferred stockholders typically have priority payment status in the case of dividend payment and bankruptcy. The terms of preferred shares vary greatly, so always ensure you read the terms of the class of shares you invest in

Common stock is the most common stock type issued by companies. It entitles shareholders to participate in the profit and growth of a company, leading to a potentially higher growth potential. With common stocks, shareholders returns are not guaranteed.

Common stock has higher growth potential than preferred shares, but preferred shares carry less risk than common ones. It is important to consider your investing needs; long-term, short-term goals, risk tolerance and growth potential.

9. How do I know if an investment opportunity might be a scam?

With any investment, it’s important to ask the right questions and do your research: check, protect, then invest. When considering an investment opportunity you should always start your research by checking three things— check to ensure that the person or company selling the security is registered, check their enforcement history and check online news about the person or company. If an investment seems too good to be true, trust your gut, it might be a scam. Check out the red flags of investment fraud to help you spot potential scams.

10. What is margin trading?

Margin trading is the ability to buy stocks that you currently cannot afford in order to maximize gain if the stock price rises. Margin traders buy securities using funds borrowed from their broker. In order to trade on margin you need a margin account, but every brokerage has different account terms so ensure you read the agreement carefully. Investors can keep their loan as long as they like, provided they fulfill the obligations of their agreement with the brokerage.

11. What are the signs of elder investment fraud?

Scam artists are aware of how the aging process affects seniors, making them one of the most vulnerable populations to investment fraud. Scam artists prey on seniors by exploiting their worries and dreams about retirement, leaving a legacy for their families and outliving their savings. To combat this vulnerability and increased risk, the ASC has developed a collection of senior-focused resources to help seniors spot and stop elder abuse.

12. What are ETF’s?

An ETF is an “exchange traded fund”. ETF’s are a security that tracks an index, a commodity, bonds or variety of assets (stocks, oil futures, gold bars, foreign currency, etc.) . ETF’s are traded like a common stock on the stock exchange where the price changes throughout the day as they are bought and sold. ETF shareholders receive a proportion of the profits, such as interest earned or dividends paid. ETF’s typically have high liquidity and lower fees than mutual funds because they are passively, rather than actively managed.

13. How do you pick an adviser?

Picking the right adviser is an important decision to make, as they can help you track your progress, set financial goals and choose investments. Helpful tips to help you pick an adviser can be found here.

14. What does the term net income mean?

The exact definition for net income can be different depending on what GAAP (generally accepted accounting principles) you use but usually it means total revenue less expenses. Here are definitions from different accounting standards:

  • IFRS (public companies use this standard) – Profit or loss is the total of income less expenses, excluding the components of other comprehensive income. Profit or loss is synonymous to net income. Source: paragraph 7 of IAS 1 Presentation of Financial Statements.
  • ASPE (private companies use this standard) – In the case of profit-oriented enterprises, net income is the residual amount after expenses and losses are deducted from revenues and gains. Net income generally includes all transactions and events increasing or decreasing the equity of the profit-oriented enterprise except those that result from equity contributions and distributions. Source: paragraph 23 of Section 1000 Financial Statement Concepts.

15. What are non-GAAP measures?

A non-GAAP financial measure is a numerical measure of an issuer’s historical or future financial performance, financial position or cash flow that is not specified, defined or determined under the issuer’s GAAP (as that term is defined in National Instrument 52-107 Acceptable Accounting Principles and Auditing Standards) and is not presented in an issuer’s financial statements. A non-GAAP financial measure excludes amounts that are included in, or includes amounts that are excluded from, the most directly comparable measure specified, defined or determined under the issuer’s GAAP.

More information about non-GAAP measures can be found here.

16. What's a good way to teach children about money and investing for their future, including post-secondary?

The best way to instill good money habits in children is to start early. If you start with simple concepts, many children can begin learning about money as soon as they have started counting. You can start by investing a short amount of time each day to talk about the many financial decisions involved in everyday activities. Often, it’s as simple as having a chat or setting up a fun activity. For more tips on how to educate our children about investing or money management, check out the Make it Count: Parent’s Guide.

17. If you have never invested before how do you start? What’s the best route to take?

As a first-time investor, this is the time to lay the foundation for making educated and suitable investment decisions – do your research, discover your risk tolerance and identify your investing goals.

Whether you choose to work with an adviser or on your own, it’s important to remember that it’s your money. No matter who’s actually handling your investments, only you will know if you are comfortable with the investment choices. And it’s up to you to stay on top of your investments to make sure they keep working for you. Click here for more tips on investing basics.

18. Is it safe to invest in cryptocurrencies? (e.g. Bitcoin)

Cryptocurrency offerings, such as bitcoin, can provide new opportunities for investors to access a broader range of investments. However, they can also raise investor protection concerns, such as:

Opportunity for fraud: Fraudsters may tempt investors by marketing a bitcoin investment opportunity as a way to get into a unique, cutting-edge space, promising or guaranteeing high investment returns. Fraudsters may solicit investors through forums and online sites frequented by members of the bitcoin community.

Decentralization: Unlike a traditional tender, such as the Canadian dollar, bitcoin is not issued, backed or administered by a central bank or government agency. Because bitcoin lacks any central governing authority, its minimum valuation can never be verified and its value is solely determined by market volatility. The likelihood of dramatic fluctuations in the value of bitcoin creates a greater risk for those buying it.

Security and technical issues: Bitcoins are stored as electronic files within individual computers and are not protected from hackers, online theft or data corruption.

Tax implications: The CRA ruled that like any commodity, gains or losses resulting from using or trading bitcoin are subject to taxation. Capital gains or profit earned through investing in bitcoin are converted to Canadian dollars to determine taxes owed. The fluctuation and volatility of bitcoin’s valuation may have a significant impact on the taxes you owe.

More information on cryptocurrency offerings can be found here.

Complaints/reporting suspected fraud

1. What does the ASC do when it receives a complaint?

The ASC reviews complaints made against individuals or companies involved in trading securities in Alberta. If the actions of these individuals or companies suggest possible breaches of Alberta securities laws, further investigation may be warranted. Documents will be reviewed, investors and others may be interviewed and evidence will be gathered and analyzed to determine whether one or more breaches have occurred. A formal hearing may then be initiated, where a tribunal will rule whether breaches took place and, if so, whether to impose administrative sanctions to protect the public and enforce compliance with regulatory requirements. The ASC can also prosecute individuals or companies in the Provincial Court of Alberta.

2. How do I find out if there have been complaints or investigations about an individual or company?

As with other regulatory or enforcement agencies, the Alberta Securities Commission must release information to the fullest extent possible, while ensuring the process of investigations and conduct of the proceedings are not prejudiced.

Under the Securities Act, the Commission cannot comment publicly as to the existence, status, or nature of an investigation being conducted. This is intended to protect the integrity of the investigation, ensure the complaint process is not used to affect the market and be just to those who are the subject of investigations.

If enforcement action has been taken against an individual or a company this information is a matter of public record and available from the Enforcement Orders database or Scheduled Proceedings.

3. Can I make an anonymous complaint?

We must be able to contact complainants for more information, so we strongly urge complainants to provide contact information. Further, the identity of complainants is kept confidential to the extent permitted by law. While we do not prohibit anonymous complaints, it is rare that we can take effective follow-up action on complaints that are submitted anonymously.

4. How long do I have to make a complaint to the ASC?

The ASC can only take proceedings respecting breaches that occurred within the preceding six years.

Q&A – Advisers

1. What do I do if I just signed up for an investment with a company or adviser that I no longer feel comfortable with?

Talk to the company directly to see if they are flexible and will consider your request.

If not and you have already signed up in the last 24 hours, call the ASC and you might be able to get out of the investment under something called the rights of recision where you have a 48-hour period to get a full refund. See section 209 and 210 in the Securities Act (Alberta).

If 48 hours have passed since you signed, you will need to talk to a lawyer to determine what actions you might be able to take.

2. I have a complaint against my investment dealer, adviser or mutual fund salesperson. What do I do?

If your complaint is of a minor nature and does not reflect on the integrity of your adviser or salesperson, talk to them. If this does not resolve the matter, or if your complaint is of a serious nature, send a written complaint to the firm that employs the individual you are dealing with. Request a meeting with the branch manager or compliance officer of the firm to discuss your concerns. If the matter still remains unresolved, file a written complaint with one of the governing regulatory organizations:

  • If the investment adviser is employed by a member firm by the Investment Industry Regulatory Organization of Canada (IIROC) you should file your complaint directly with them at www.iiroc.ca
  • If the salesperson is employed by a member firm of the Mutual Fund Dealers Association (MFDA), you should file your complaint directly with them at www.mfda.ca.
  • If your dealer/adviser or salesperson is employed by a firm that is NOT an IIROC or MFDA member, or you are unsure who to contact,  file the complaint with the ASC.

3. What should I do if my financial adviser did not place my order when I told him to do so?

If you have concerns over the length of time it took your financial adviser to place your order, you should contact them to find out why.  If it was a short delay, your financial adviser may have a reasonable explanation for you. If your order was not placed for an extended period, contact the branch manager or compliance officer of the firm. If the matter still remains unresolved, contact IIROC or the MFDA.

4. How can I find out if an adviser is registered?

With limited exemptions, an individual or company who is selling securities or offering investment advice in Alberta must be registered with the MFDA, IIROC or ASC.

You can check registration for free on the ASC website or contact the ASC at 1-877-355-4488 or inquiries@asc.ca to find out if an individual or company is registered.

5. How does registration help protect investors?

Securities regulators will only register firms and individuals that meet certain proficiency, integrity and solvency requirements.

6. What are the steps I should take to make sure I am investing with a good firm and or adviser?

Before choosing a firm or adviser, a great first step to help you make an informed decision is to check registration. With limited exceptions, in order for a firm or individual to sell securities or offer investment advice in Alberta, they must be registered with the ASC.  You can check the National Registration Database to see for yourself if they are registered.  Registration helps to protect investors because securities regulators will only register firms and individuals that meet certain proficiency, integrity and solvency requirements. Click here for more steps to help you make an informed decision.

Registered Savings Plans Q&A

1. What is the maximum TSFA limit for 2017 from its inception?

The Tax Free Savings Account (TFSA) limit for 2017 is $5,500. For more information of past TFSA limits, click here.

2. What happens if my kids don't use their RESP?

Unless otherwise specified in the terms of your plan, an RESP account can stay open for 35 years before it expires. If your kids don’t use their RESPs, it may be possible to transfer the funds to a different account, such as an RRSP. Detailed information can be found here.

3. What should I do if I've accidentally over-contributed to my RRSP in a certain year?

Information on exceeding your RRSP deduction limit can be found here.

4. Which is better to start with, an RRSP or TSFA?

The ideal response is – maximize contributions to BOTH! But, for many people that’s not realistic.

There’s no simple way to determine if an RRSP or TFSA is best to start with. RRSPs are great to reduce your taxable income. But, if you’re in a lower tax bracket, TFSAs may be a better account to save in. If you need flexibility to fund financial goals aside from retirement, like a home renovation, it’s better to save in a TFSA. And, if you expect to earn a generous pension, the combined income from that and your RRSP withdrawals could drive you into a higher tax bracket in retirement than when you were working.

This is an area where it may be helpful to work with a financial professional, as they can customize the calculations for you. Click here for more information on RRSPs and here for TFSAs.

5. Can you borrow from your RRSP to pay for additional post-secondary education or to buy a home?

You are able to make early withdrawals from your RRSP to fund your education through the Lifelong Learning Plan. More details can be found here. You can also borrow from your RRSP through the Home Buyers’ Plan to build or buy a home. More details can be found here.

6. What is the maximum donation I can make to the RDSP of a disabled family member?

The maximum donation you can make to a Registered Disability Savings Plan (RDSP) is $200,000 – this is the lifetime contribution limit.

General investing Q&A

1. For someone who hasn't ever invested, how do you recommend getting started?

If you’re new to investing, there are a number of things you’ll need to consider before getting started, including setting goals, developing a plan and knowing your risk tolerance. Knowledge is power, so increasing your investing knowledge before starting is also a great idea. If you need guidance to get started, you may want to seek the services of a financial adviser. More information to help you get started can be found here.

2. What is a Ponzi scheme?

A Ponzi scheme is a type of investment scam that promises high rates of return with little or no risk to investors. Returns on investment are not paid from profit, but from money invested by new investors – there is no legitimate investment. More information on Ponzi schemes can be found here.

3. Can the ASC give me advice on what stocks to pick?

The ASC isn’t able to provide advice on choosing investments. This website, Checkfirst.ca, has information to help you learn ways to make an informed investing decision.

4. What is an RRSP?

A registered retirement savings plan (RRSP) is a type of account that you can save in, ideally for your retirement. You can hold a wide range of investments in an RRSP, including cash, mutual funds and stocks. Contributing to an RRSP also has tax-saving advantages and it is a tax-sheltered account. Click here for more information on RRSPs.

5. What are binary options?

Binary options are an “all or nothing” wager on how an underlying asset will perform in a limited amount of time. Investors can have as little as 60 seconds to predict the market’s minute-by-minute fluctuations, which make investing in binary options extremely risky, even for seasoned investors. More information on binary options can be found here.

6. What is the difference between saving and investing?

Saving is meant to simply preserve money or set it aside to protect it for when it may be needed.  Investing is always done expecting a profit or some sort of appreciation of the amount that is put in.

7. Why is diversification important?

Having a different kinds  of investments in your portfolio can help create steadier returns in the long run and help minimize risk. If you are heavily invested in one sector and it loses value, it can have a big impact on your investments and financial future. There are many ways to diversify your investments, including:

  • Type of investment
  • Type of industry
  • Time to maturity

8. What are some common investing mistakes people make?

Even the most experienced investors can make common investing mistakes. Below are three common mistakes people make when it comes to investing.

    1. Investing before researchingIt’s important to always research the investment before you hand over your money to help you make an informed decision.
    2. Ignoring risk Almost all investments involve some level of risk, but many investors simply focus on their returns (reward). Before you invest, it’s important to be aware of the risks that can affect the performance of your investments and be aware of how much risk you are comfortable taking.
    3. Having too many or too few investments –  Diversify your investments. Having too many can destroy the chance for good returns, while having too few increases risk.

Click here for more common mistakes and tips to help you invest wisely.

9. What sort of regulation is there in Alberta for the emerging number of cryptocurrencies?

Many cryptocurrency offerings involve the sale of securities. Securities laws in Canada will apply if the person or company selling the securities is conducting business from within Canada or if there are Canadian investors. More information can be found here.

10. Where can I learn more about how the stock market actually works?

While there are numerous books, articles and websites out there to learn about how the stock market works, the ASC has developed a course in conjunction with Chinook Learning Services in Calgary and Metro Continuing Education in Edmonton called Investing 101. This course will help new investors gain basic knowledge of a range of investing topics including: the stock market, investing and compound interest, types of investments, tax considerations and investment scams. More information can be found here.