The Retail Investors Guide to COVID-19

The COVID-19 pandemic has caused panic, uncertainty and loss in multiple areas of society, and Canadian capital markets are no exception. The increased volatility of stock markets has led to volatility and losses in many Canadians’ investment portfolios. At a time when Canadians should be concerned about the health and safety of themselves and their families, financial uncertainty has added to the stresses of responding to the COVID-19 pandemic.

This article highlights some best practices for retail investors when responding to investment portfolio volatility caused by the COVID-19 pandemic. It provides a list of Do’s and Don’ts for retail investors and highlights common scams that all investors should be wary of. Lastly, it provides a list of available resources for investors who have fallen victim to a scam, fraud or received improper investment advice before or during the COVID-19 pandemic, including reaching out to the Osgoode Investor Protection Clinic.

Do’s and Don’ts for Retail Investors During the COVID-19 Pandemic

DO: Talk to a registered investor adviser about how the pandemic has impacted your investment portfolio.
There is no one-size-fits-all approach to responding to market volatility and it is important that you speak to a registered investment adviser about the best approach for your portfolio. A registered investment adviser can take into consideration your personal financial resources and objectives in determining the best investment strategy for you. Your personal circumstances and financial goals may have changed during the COVID-19 pandemic. It is important that this information is communicated to your investment adviser so they can adapt your investment strategy accordingly.

DON’T: Panic and liquidate your entire investment portfolio.
Many investors see their portfolio value declining during a market downturn and immediately panic and liquidate all their investments. This approach may not be the best approach for your personal investment objectives. You should seek out professional financial advice before making any rash decisions with regards to your investments during a period of market volatility.

DO: Be patient as the market goes through ups and down.
Markets have historically risen and fallen in cycles, and a well-balanced portfolio should be built to withstand those cycles over the long run. Don’t panic if you see that your investment portfolio has dropped in the short-term. Instead, speak to a registered investment adviser about your long-term investment strategy and ensure that your investment portfolio is designed to withstand the ups and downs of the market in accordance with your personal financial goals.

DON’T: Try to time the market.
Some retail investors may try to time the market by investing in certain stocks when markets are down and selling them when markets are up. Timing the peaks and valleys in the stock market is difficult, even for highly skilled and experienced investors. Attempting to time the market subjects individual retail investors to certain risks and potentially high transaction fees from constantly buying and selling securities. For the average retail investor, holding a well-balanced portfolio over an extended period of time is often a better strategy for mitigating the risks associated with volatile markets.

DO: Maintain a balanced investment strategy in line with your personal risk tolerance.
The ideal investment strategy will not be the same for all retail investors. An investor planning to retire in two years will not have the same target investment portfolio as an investor planning to retire in thirty years. In determining the ideal investment strategy to withstand volatile markets, retail investors should ensure their investment adviser understands and considers their personal investment goals. Retail investors should take the time to communicate their personal investment goals clearly to their investment advisers and make sure that these conversations are well-documented.

DON’T: Seek out high-risk alternative investment products in pursuit of higher returns.
The current low-interest-rate environment and declining stock markets leads some investors to seek out higher returns from alternative investment products, such as high-yield bonds, penny stocks, cryptocurrencies, leveraged investment products or derivatives. While these alternative investment products may offer the promise of higher returns, they come at the cost of increased risk. These products are often not suitable for the average investor. Retail investors should avoid risky investments during periods of market volatility, as they may lead to further losses.

DO: Be Wary of Investment Products that are “Too Good to be True”.
Volatile markets often lead to an increase in scams or fraudulent sales techniques offering investment products that appear to good to be true. Retail investors should avoid responding to online or in-person solicitations for products with “guaranteed returns,” “higher returns with no extra risk,” or based on “new information that isn’t widely available.”

DON’T: Trust online sources purporting to offer free services or requesting personal information.
The quarantine has caused more and more people to look online for information regarding their investment portfolio or financial plan. Scammers and fraudsters have tried to take advantage of this by increasing phishing and other scams that target individuals who are worried about their financial situation during COVID-19. Investors should avoid giving personal information, such as credit card numbers, banking information, or their Social Insurance Number, to online services offered to assist individuals during COVID-19.

DO: Verify that your investment adviser works for a regulated investment firm.
Retail investors should take the time to verify that their investment adviser works for a regulated investment firm. Retail investors can also visit the Investment Industry Regulatory Organization of Canada’s AdvisorReport to research the background, qualifications and disciplinary information on registered advisers at IIROC-regulated firms.

For more information on how COVID-19 may impact your investment portfolio and how to respond, visit the Ontario Securities Commission’s online COVID-19 investor information page.

Common Scams to Avoid

The uncertainty caused by the COVID-19 pandemic has resulted in an increase in scams related to the pandemic. This section provides a list of common scams that investors should be wary of at all times, but particularly during the pandemic.

Pump and Dump Schemes: Online scammers often release false information about a certain stock in an attempt to boost the stock value before selling it at the expense of investors that relied on the false information. During the COVID-19 pandemic, this may take the form of false information regarding a potential COVID-19 cure or that a company has secured a large contract for selling PPE. Investors should avoid making investment decisions based on illegitimate sources, specifically from online forums or chat rooms.

Unsolicited Offers: Similar to pump and dump schemes, fraudsters often directly contact individuals who are worried about their investment portfolio trying to sell alternative investments or “hot stocks.” Retail investors should be wary of any unsolicited offer to sell them an investment product at all times, but especially during periods of market volatility.

Phishing Schemes: Phishing schemes can involve the impersonation of a bank, investment firm, a government service or the CRA. They typically either offer to provide a service, such as assistance applying for government benefits or an offer to move your investment portfolio to safer assets. The scammers then request personal information in order to do so. Investors should avoid giving personal information over the phone or online, specifically in response to an unsolicited offer, an unsolicited email or an online advertisement.

Quick Money Scams: Scammers often target individuals going through financial difficulty during periods of market volatility by offering “quick money” opportunities. This can take the form of a “work from home scheme” or a “low interest (or interest free) guaranteed loan”. They often request personal information or the payment of an upfront fee to take advantage of the opportunity. Investors should avoid making any upfront payments and refrain from providing personal information in response to unsolicited offers.

For more information on avoiding and reporting potential scams, visit the Ontario Securities Commission’s online resources on protecting yourself form COVID-related scams or the BC Securities Commission online resources on common investment scams.

What to Do if You Are the Victim of a Scam, Fraud or Improper Investment Advice?

If you are the victim of a scam, fraud or improper investment advice there are a number of avenues you can pursue to help pursue recourse, including submitting a complaint with a regulatory body, contacting a lawyer, or requesting the services of the Osgoode Investor Protection Clinic.

Contact the Osgoode Investor Protection Clinic: The Osgoode Investor Protection Clinic is a pro-bono legal clinic that provides free legal advice to people who believe their investments were mishandled and who cannot afford a lawyer. The Clinic assists clients with legal and regulatory complaints. For more information on the Clinic Click Here. To learn how you can seek assistance from the Clinic Click Here.

Submit a Regulatory Complaint: Depending on the nature of the scam, you may be able to submit a complaint to one or more of the financial services’ regulatory authorities in Canada, including:

  • Investment Industry Regulatory Organization of Canada (IIROC) for complaints regarding registered investment dealers and advisers by Clicking Here.
  • Ombudsman for Banking Services and Investments (OBSI) for complaints regarding participating banking and investment services firms by Clicking Here.
  • Mutual Fund Dealers Association of Canada (MFDA) for complaints related to licensed mutual fund dealers by Clicking Here.
  • Provincial Securities Regulator for complaints related to the purchase and sale of securities. Investors in Ontario can make a complaint with the Ontario Securities Commission by Clicking Here. Investors outside of Ontario should consult their local securities regulator.

Seek out Legal Advice: Contact a lawyer to discuss the merits of a potential legal case.