Exempt market dealers struggling with compliance obligations

As the exempt market continues to come under regulatory scrutiny, dealers are being urged to ensure their suitability, marketing and other compliance practices are up to standard.

At the Strategy Institute's Registrant Regulation Compliance Strategies Summit in Toronto on Wednesday, regulators said they're heavily focused on ensuring exempt market players are familiar with, and complying with, the applicable regulations.

"We're trying to understand our exempt market. We're also trying to bring into registration those who should be registered," said Mark French, manager of regulation and compliance in the capital markets regulation division of the British Columbia Securities Commission. "We're going to be doing a lot of compliance outreach work, visiting these firms, doing what we call inspections – limited scope examinations."

Added French: "where we see risk, we'll take action."

Prema Thiele, partner at Borden Ladner Gervais, LLP, said exempt market dealers which haven't yet been audited will likely be contacted by regulators in the months ahead.  "There's a lot of emphasis on the compliance side," she said.

Exempt market dealers have been struggling to keep up with the ongoing regulatory changes that have been taking place since National Instrument 31-103 came into effect in 2009, according to David Gilkes, director of the Exempt Market Dealers Association and president of North Star Compliance & Regulatory Solutions Inc. He said there have been 10 regulatory staff notices, amendments and proposed rules affecting exempt market dealers since 2009.

"It is hard for people to keep in touch," said Gilkes. "I'm hoping that the regulators will appreciate how much is being pushed onto dealers at this time."

It's been particularly challenging for new registrants in the exempt market, which had to register for the first time in 2009 under NI 31-103, said Geoffrey Ritchie, executive director of the EMDA. "They're struggling to understand their compliance obligations," he said.

Regulators have identified plenty of compliance deficiencies at the exempt market dealers they've reviewed. Suitability has been a particularly problematic area, since many exempt market products are illiquid and considered to be risky. The onus is on the dealing rep to prove that the product is suitable for a particular client, given their risk tolerance and time horizon.

"You've got to think about liquidity as part of your suitability requirement," said Gilkes.

Regulators find that many dealing reps fail to appropriately document conversations about suitability.

"A lot of times we don't see the documentation of these discussions anywhere," said Janice Leung, lead securities examiner at the BCSC. "We're looking for stronger and clearer evidence that that's being carried out."

Marketing is another area where regulators commonly identify deficiencies in the exempt market. "It's a top of mind issue," said Ian Pember, chief operating officer and senior vice president of administration and compliance at Hillsdale Investment Management.

Specifically, Pember said regulators often find exempt market players using exaggerated or unsubstantiated claims on their websites, pamphlets and other marketing materials. 

"Unless you can point to some third party source to back it up, you just can't use it," he said.

Since many of these compliance requirements represent new territory for many exempt market dealers, much education will be necessary to bring the industry up to speed, Ritchie said. He's encouraged that regulators seem to be focused on helping to educate dealers on their obligations.

"We're really into a big education phase," he said.

Exit strategy time for private equity hurts those sellers who wait

Exit strategies are mounting as Private Equity and the Baby Boomers start to sell businesses - some good revenue spinners and many more as poor revenue earners. The challenge for business owners will be to compete in such a crowded market. Getting in private equity partners as a first stage in the sales process is the smartest move for many business owners.
The Wall Street Journal elaborates:

Private-equity firms globally, with $1 trillion in uninvested assets, are under pressure not only to put capital to work in new investments but also to return capital to investors through monetizing old investments."Private-equity firms will feel pressure to unload assets in 2012," said Hugh MacArthur, head of consultant Bain & Co.'s private-equity practice. "They have been slow to return capital to investors since the downturn."Bain, which advises private-equity firms and their stakeholders, said nearly $2 trillion in assets are on firms' portfolios.

Know your "mathematical fit" to attract private equity funds

"When you do the math and understand your figures," advised financial expert Jacoline Loewen, "then you will do well in business."    Loewen, a partner with Loewen & Partners and author of Money Magnet, was talking to over 120 women business owners who were gathered together to celebrate International Women's Day.

She highlighted several successful women entrepreneurs who had not only done well in their business ventures, but sold them for millions and encouraged the women in the audience to think big, to believe in themselves and pursue growth. (You can see Jacoline Loewen's presentation at the Exempt Market Dealers Association website here. Scroll down.)

And the panel of women entrepreneurs who followed had done just that.  There was a common theme in their stories - each had just leapt in and followed her passion, not always knowing what they didn't know, but confident that they would obtain the knowledge they needed to succeed.

Neither Chioma of AMOI magazine nor Marissa McTasney of Moxie Trades were shy about pursuing someone who could help them, and when they had successfully tracked down the right person, and won them over, it was as if the doors opened and nothing could hold them back.

Marilyn Sinclair of WordCheck and iContent, on the other hand, was a serial entrepreneur, with over four businesses to her name, including one she had recently sold.  When she reflected back on her finances, she admits that she had difficulty getting a line of credit in the early days, and that one bank had required her to have her father's signature.  As she said, had she been married at the time, likely it would have been her husband's consent that was needed.

Times have changed, but we still have a long way to go.  The first step, recommends Loewen, is to do your homework and determine the type of investor who would most suit your financial needs.  Next is to know your figures; to present yourself in a competent, warm but professional manner, and be able to articulate your unique value proposition.  She also suggested that women focus on growth, not on the actual product, as that could change.

The Honourable Brad Duguid, Minister of Economic Development and Innovation (MEDI) gave the opening remarks at Become a Money Magnet which was organized by Company of Women, EMDA, Enterprise Toronto, Microskills and WEConnect Canada, and hosted by Ernst & Young.  "We wanted to focus on women and money, because while more and more women are entering the world of entrepreneurship, their rate of growth is lower when compared to their male counterparts." shared Mary Anderson of WEConnect Canada.  "And a lack of financial literacy, confidence and knowledge of what is available are all part of the problem."

This International Women's Day event was one of 25 held across the province that was funded by MEDI. 

The Exempt Market Dealers Association was a proud organizer of International Women's Day. This is part of the strategy to reach female business owners and link them to financial expertise and sources of private equity.

If you want to improve your pitch, watch realSociable on BNN

Women pitchers can gain quick traction if they quickly demonstrate competence. Investors have now seen a long track record of women entrepreneurs who have made other people very wealthy with great business concepts. If a woman proves her business expertise quickly, she will be on the same track as male business owners.
If you want to know how to pitch to demonstrate competence and warmth, watch Dalia Asterbadi, the founder and CEO of realSociable which helps companies transform tweets and Facebook updates into useful information for sales.

Here is the Realsociable pitch on BNN The Pitch. 
Watch Real Sociable pitch on BNN.

Tips on how to give a killer pitch if you go on BNN The Pitch

Going on TV and pitching takes guts but can pay off high dividends if done well.
You can learn a great deal by watching the best pitchers. Here is Unhaggle doing a good presentation, you can see how Andrew Bell responds warmly because the business is understandable.
Also watch how the panel is very interested and questions the pitcher for deeper understanding, rather than closing down the discussion.
Watch BNN The Pitch here: