Investors Bucking the trend by trading online

Investors Bucking the trend by trading online TheStar.com - Investing - Investors Bucking the trend by trading online

After being thrown for a loss during the market meltdown, more Canadians are taking the reins of their investments and riding off with some impressive financial rewards

Madhavi Acharya-Tom Yew
Business Reporter

New products, lower fees, less frustration.

That's what prompting more Canadians to open online trading accounts, even after so many investors took a drubbing in the stock market last year.

"Today we're experiencing record interest and activity in terms of assets and account openings," said John See, president of TD Waterhouse Discount Brokerage.

The rise of information technology stocks and dot com culture in 1999 also gave birth to the image of the day-trader: the stock market do-it-yourselfer who spent his days furiously buying and selling stocks electronically, often knowing nothing about the company or the industry.

The strong bull market attracted new investors in droves. When the tech bubble burst in 2001, so did the number of new discount brokerage accounts.

Interest in online trading stalled for a few years, then began to pick up steam as markets rebounded and the Internet became a way of life.

Then, last fall, came another market meltdown. Online brokerages braced themselves, but this time around, it was different.

"Last September, we had the markets falling apart. Yet we had account openings that were almost what we had in the height of the bull market of the tech bubble," said Connie Stefankiewicz, president and chief executive of BMO InvestorLine.

Experts say that new investment products, such as Tax-Free Savings Accounts and Exchange-Traded Funds, in particular, are driving the new boom.

They also point to widespread investor frustration – paying commissions to full-service brokers who failed to protect them from big stock market declines.

A lot has also changed on the technology side: Online investors today have a bulging tool kit that includes online calculators and portfolio builders, customized alerts, and stock and mutual fund screeners. Clients of bank-owned brokerages also have access to a steady stream of economics and equity research.

Stocks remain the bread and butter for brokerages but most allow you to buy and sell mutual funds, bonds and guaranteed investment certificates (GICs).

A recent survey by global marketing firm J.D. Power and Associates ranked Disnat Online Brokerage, a division of Desjardins Securities scored the highest level of investor satisfaction among Canada's online brokerage firms.

The same survey found that low transaction fees, new product offerings and efficient online trading brought more Canadians to discount brokerage firms in the past year.

Nearly one-third of discount brokerage customers in Canada indicate they have been with their primary firm less than 12 months. The study also found that lower trading fees are an important factor in the rapid growth of discount brokerage firms, but not the only one.

What clients value most: customer service – online, but also via telephone and in-branch channels.

"Discount brokerage customers may be independent and very self-directed overall, but when something goes wrong or they need assistance, it is critical that the firm delivers in efficiently resolving any issues," said Lubo Li, senior director at J.D. Power and Associates.

InvestorLine has found that investors are using Tax-Free Savings Accounts as a way to try investing on their own.

"TFSA's have had a significant impact in terms of new clients," Stefankiewicz said. "It seems that a lot of investors who may not have really looked at online brokerage for their RRSP or general portfolio are taking this opportunity with their TFSA to try a new approach to investing."

ETFs, or exchange-traded funds, with their low-cost and transparent structure, also seem to be an ideal vehicle for online trading. These investments are essentially index funds that trade on the stock market.

Canadians currently have about $27 billion in ETFs, and about $7.3 billion of that has come into the market in the last year, said Rajiv Silgardo, BMO's head of ETFs.

"Investors have gone through severe market downturns, volatility and lack of liquidity and less than full transparency. Investors want solutions that give them better risk control, that give them more diversification, more transparency. ETFs by definition do all this."

BMO launched four ETFs in June, two U.S. equity funds, a large-cap Canadian fund, and a Government of Canada bond ETF. It plans to launch more in the fall, along with a campaign to create awareness.

Typically, 20 per cent of brokerage clients are active traders who generate 80 per cent of the brokerage's revenues. The rest of the customers tend to be buy-and-hold types.

Discount brokerages are not allowed by stock market regulators to give advice, but investors can call with questions about how to use tools on the site, read charts or compare sectors or allocate their portfolio.

"We don't give advice but what we have found through this period of significant market turbulence is that often clients want to hear a voice on the other end of the phone to discuss what's in their account," Stefankiewicz said.

Experts are quick to say that online trading is not for all investors.

"People who don't have the time or the interest and they would be much better with someone who does that for a living," See said.

Ultimately, it also comes down to confidence, Stefankiewicz said.

"Do they have the confidence to make decisions? If they're not going to make decisions, they're probably not suited to doing it on their own," Stefankiewicz said. "They really would be much better of dealing with any adviser."

The growing trend, experts say, is clients using a combination of services.

"It's not an `either/or.' It's an `and' for investors these days," Stefankiewicz said. "Investors have an adviser and they have an online brokerage account. They segregate them in their own mind in terms of what they're doing in each of those relationships."

Investment Angels

Investment Angels TheStar.com - Small Business - Investment Angels

COLIN MCCONNELL/TORONTO STAR

Robert Koturbash, managing director and Marnie Walker, founding director of Maple Leaf Angels, pose with (on right) Paul Pelton of fleet ad firm City Flitz. Maple Leaf gets about 400 applications for funding every year, with only six or eight chosen.

Where can you turn after friends have ponied up and before your startup is big enough to interest venture capital firms?

September 28, 2009

Susan Down

Angel investors may not have wings, but they can be the answer to an entrepreneur's prayers, providing early-stage funding to deliver them from pre-revenue purgatory.

After the friends and family have written their cheques of support for the new enterprise and before the new company is big enough to interest venture capital firms or profitable enough to secure bank financing, angel investors are there to back a great idea.

"The biggest difference between angels and the other institutional options is that it's their own money," said Bryan Watson, executive director of National Angel Capital Organization, a Canadian group that aims to provide education and support to close to 30 angel investing groups in the country.

NACO is holding its Angel Investing Summit Oct. 14-15 in Toronto.

"They can spend it by buying as boat or a cottage or investing in an early-stage, high-growth company. On the venture capital side, they are managing someone else's money."

Money isn't the only benefit that entrepreneurs receive.

Most investments come with a caveat that the investor will be actively involved in the operations.

That means coaching and advice are included. Similarly, the eventual financial payoff – the length of a typical investment is eight years – isn't the only attraction for the angels. Typically seasoned entrepreneurs, they love the thrill of seeing a new idea succeed.

"What I love about is being at the birth," said Blake Witkin, co-founder and board director of Maple Leaf Angels, one of Canada's largest angel investment groups.

"When companies become more mature, more bureaucratic, it's not as interesting as being at the formation stage."

Angels are people with a high net worth, people who have successfully created other start-up companies and understand what's needed to succeed.

Angels can be retired, having sold their enterprises and cashed out, or they can be investors who are still working in other companies.

For example, Witkin is a managing partner in IT company Atra Vision Inc. He has also invested in about six new ventures as an angel, and believes he has a good track record. "All of them are surviving and some are prospering," he said.

Witkin likes to use an ecological image to explain the investment crap shoot: "Ultimately, job creation comes from the creation of wealth and all businesses like all trees have to start as a small seed. Angel financing is the water and the sunshine for those little seeds. And many of them don't make it, hence the risk."

Based in Toronto, Maple Leaf Angels is a non-profit organization established in 2007. The group has 50 members who have invested a total of $5.7 million so far. Every month the group holds a breakfast where members listen to three presentations from prospective investee companies.

If some of the members have interest then Maple Leaf will do some further investigating. Maple Leaf gets about 400 applications for funding every year, with only six or eight chosen to receive investment funds.

While angel investing sounds freewheeling, decisions are not made as fast as the CBC business show Dragon's Den would have you believe.

"It used to be that a sketch on the back of a napkin would be enough to get a cheque from an investor," said Watson. "Those days are gone. There's not much sketch-and-a-dream investing. People are looking for companies with a little bit of traction, a bit of revenue and a great team of people that will lead."

Even after careful assessments of the business plans, the ventures don't always become profitable. For every 10 investments, two go bankrupt, six will allow the angels to recoup their investments and two will deliver the big returns.

Typical investments are in the form of either equity or convertible debt in amounts ranging from $150,000 to $1.25 million.

An investor's exit strategy consists of one of three ways to get money out: an IPO, a merger or acquisition by another company or a dividend once the company has matured.

Angel groups say an extra $5 billion in investments is needed to ease the commercialization bottleneck and help grow new companies. NACO is pushing the federal government to initiate a system of tax credits as incentives to invest.

According to Maple Leaf Angels managing director Rob Koturbash, "fostering entrepreneurship is really what's going to drive us out of the recession because it's not established manufacturing businesses."

Street scrambles to revise forecasts

Have stock prices gotten ahead of themselves? Some say yes

The summer stock-market rally has been more than just a pleasant surprise for beleaguered investors. It also caught some of the Street's top market watchers with their forecasts down.

When the S&P/TSX composite index surged past 11,000 this month for the first time in almost a year, it blew through the targets that many of Bay Street's most respected forecasters had predicted wouldn't arrive until the end of 2009. After many market strategists had updated their year-end targets in June and packed away their calculators for the summer, the Canadian market defied the traditionally listless investing season to stage its strongest summer rally in decades, rocketing 14 per cent from early July to the end of August – and then tacked on another 5 per cent in the first three weeks of September, usually the worst month of the year for the market.

Although several strategists scrambled to raise their year-end targets in the past week, an informal Globe and Mail survey found that the median forecast among top Bay Street prognosticators stood at 12,100 – a thin 5 per cent above the index's 2009 high of 11,585.73 reached last week. In the U.S. market, meanwhile, Bloomberg News reported that the S&P 500 was trading last week about 5 per cent above the average year-end target in its monthly survey of leading Wall Street forecasters, and had already surpassed all but one of the 10 targets in its poll.

With the biggest rally since the 1930s already in the books, but With the traditionally strongest quarter of the year for the market still to come, the strategists are now asking themselves: Are their expectations too conservative, or is the market too frothy?

“The truth is, nobody knows where all of this is going, short term,” said Kate Warne, Canadian market strategist for Edward Jones & Co. in St. Louis. She said the rapid moves of the market over the past year have made target-setting particularly difficult.

“It's difficult enough to get the direction right,” quipped David Rosenberg, chief strategist at Gluskin Sheff + Associates.

Even last week's trading caused forecasters to step back. After reaching their highest levels in almost a year, stocks spent the last half of the week in retreat (the S&P/TSX ended the week off more than 3 per cent from Tuesday's close), raising questions about whether investors were seeing a brief pause in the rally or the beginning of a long-anticipated correction.

Strategists said the rally, which has been built largely on expectations of an economic recovery that has yet to transpire, may need to see more concrete evidence of growth before it can go much further. “We've already bought and paid for a lot of the recovery we'll see in 2010,” said Myles Zyblock, chief equity strategist at RBC Dominion Securities Inc.

“We need to see the earnings [growth] come in,” Ms. Warne said.

She said the S&P/TSX could manage to claw its way to 11,800 before the end of the year, but predicted a “bouncy,” volatile ride to the end of the year – typical of a market searching for a new catalyst after a big move.

And, she predicted, the next few months could feature a rotation by investors out of the energy and financial sectors – which have led the gains during the rally and may have run their course – and into solid dividend-paying names that have lagged.

“It's a time of what I'd call ‘choppy consolidation,'” she said.

Chief strategist Stéfane Marion of National Bank Financial in Montreal, meanwhile, believes the Canadian stock market could be slowed by the U.S. dollar. The greenback's woes have been a major driver of this year's surge in the price of gold and, by extension, gold stocks, which make up 10 per cent of the S&P/TSX composite. But the currency has recently been showing signs of stabilizing, and could be about to turn upward.

“A U.S.-dollar appreciation will put some downward pressure on golds by the end of the year,” said Mr. Marion, who has decided to maintain his year-end target at 11,600.

But others argue that the growing global economic momentum, the Canadian market's resource-heavy tilt, and the country's relatively strong and stable economy leave the TSX well-positioned to extend its rally.

“My gut feeling is that we'll reach 12,000 closer to Christmas than next year,” said Vincent Delisle, strategist at Scotia Capital in Montreal. “I think it's going to be quick.”

Alberta authorities eye oilsands firm as Ponzi probe deepens

By Kelly Cryderman, Calgary HeraldSeptember 26, 2009

Milowe Brost, charged with operating an alleged Ponzi scheme, enters his home in Chestermere, Alta. on Sept. 17.

Photograph by: Leah Hennel, Calgary Herald

CALGARY — The Alberta Securities Commission has levelled its largest fine ever against Milowe Brost, one of two alleged Ponzi scheme architects, but the watchdog agency isn't done with the Calgary men.

A hearing in the new year will focus on a purported energy and oilsands company that the securities commission alleges Brost, 55, Gary Sorenson, 66, and another man were responsible for developing, Arbour Energy Inc.

The commission says Calgary-based Arbour collected more than $46 million from investors — mostly Albertans — over 16 months.

According to Arbour's website, the firm was engaged in oil and gas exploration, and environmentally friendly oilsands recovery. But at the time it sought money from investors, "Arbour had effectively no business or operations," the ASC alleges in its hearing notices.

"They were trying get the people — they wanted to invest their money in something that was environmentally friendly. And that was the shtick that they used with Arbour Energy, that they were actually trying to clean up the tarsands," said Graham McMillan, a chartered accountant who has studied the business dealings of Brost and Sorenson since his elderly parents invested $50,000 in a Brost-related company.

Lawyers representing Arbour officials contacted for comment declined to be interviewed. A news release from Arbour's president Dennis Morice in 2008 said "the company intends to aggressively defend its position both before the commission and through the courts."

Last week, the RCMP slapped Brost and Sorenson with theft and fraud charges related to an alleged Ponzi-like scheme that could, through a throng of companies, involve as much as $400 million, according to court documents.

At the same time, the Alberta Securities Commission continues to look into Arbour Energy, which was a publicly traded company.

The commission alleges the controllers of Arbour Energy, including Brost, Sorenson and their associates, "perpetrated a fraud on Alberta investors" and illegally distributed Arbour securities.

Brost in particular is singled out. In 2007, he was handed a $650,000 fine — the largest in Alberta securities history — and banned for life from operating in Alberta's capital markets for his role in a fraud against investors through the company Strategic Metals Corp.

None of the new allegations have yet been ruled on by an ASC panel.

In all, Arbour managed to raise $46 million through the sale of shares, ASC documents allege. Most of those shares were sold through the Institute for Financial Learning (IFFL), an entity the ASC alleges provided unregistered advice to investors.

The IFFL was one of the companies listed by RCMP when they charged Brost and Sorenson.

"The majority of the purchasers were IFFL members, and more than half the sales — $25,144,689 — occurred in Alberta," says a ruling from the commission.

About $43 million was loaned to Merendon Mining, a company controlled by Sorenson, according to the ASC. Sorenson is now believed to be living in Honduras, a country which does not have an extradition agreement with Canada.

After numerous delays caused by fillings from the respondents — who include Brost, Sorenson and other controllers of the company — the hearing for Arbour will begin on Jan. 18.

Commission spokeswoman Tamera Van Brunt said if the ASC panel finds the allegations to be true, Arbour officials could face a fine of $1 million per contravention of the Securities Act. The players could also be banned for life from participating in Alberta's capital markets.

Meanwhile, more information came to light Tuesday about an anonymous group calling itself The Agency, which is taking credit for distributing wanted posters around Sorenson's palatial home in Honduras.

The posters appeared last week when RCMP charges against Brost and Sorenson were announced. They depict Sorenson and his wife Thelma, along with the promise of a $100,000 reward for their arrest and the return of investors' money.

In an e-mail to the Herald, the group said it will co-operate with authorities and does not want to jeopardize any cases against Sorenson and Brost.

The group claims it has been contracted to recover lost money, but will not say specifically who it is working for.

© Copyright (c) The Calgary Herald