Consumer and Non-Profit Law
A Guide to Securities Investment
This is a pamphlet for anyone interested in investing in securities.
Almost everyone deals in securities, either directly through ownership, or indirectly through registered retirement savings plans (RRSP's) and pension plans. The aim of this pamphlet is to help you understand your rights and responsibilities before making a decision about investing in securities.
What is a securities investment?
When a government or company requires money to finance special projects or provide services, it can borrow from lenders or issue securities. An investor can buy these securities hoping to get back profit or income if the investment is successful.
What are securities?
Securities are the certificates or documents that show you have an interest in the capital, assets, property or profits of a company or business. They describe your rights as a shareholder or investor, or a company's obligation to you.
Are there different types of securities?
Yes. Each type of security carries different rights and obligations.
- Equity securities include common or preferred shares, which make the investor a part owner of the company or other issuer of securities. In return, the investment entitles the investor to a portion of the profits.
- Debt securities include bonds and debentures which make the investor a lender to the issuer or company. Government or government agencies often issue bonds.
- Mutual fund shares or units are another common type of security. A mutual fund investment enables an investor to pool his or her money together with many other investors. Professional fund managers then invest the money in a wide variety of investments. The original investor does not have to make the investment decisions.
Other types of securities include:
- limited partnerships in real estate or films.
- some education savings plans that invest in securities.
- oil and gas leases.
- options on gold, silver and foreign currency.
Why would I invest in securities?
You may invest in securities hoping that your money will earn more than it would in another type of investment. Or, you may be looking for a tax savings.
How does investing work?
There are usually three participants in a securities investment. They are:
- The Issuer. The issuer is the organization that offers the securities for sale. The issuer can be, for example, a company, business, mutual fund, government or government agency.
- The Investor. The investor is the party who is buying the securities. The investor might be a bank, a trust company, a pension plan, a mutual fund manager or an individual like YOU.
- The Broker. Brokers are the go-betweens who help bring investors and issuers together. They often have titles such as investment advisor, sales representative, salesperson, or stockbroker.
Is investing in securities risky?
All securities carry some risk. Some investments have more risk than others. For example, investments in gold options and other precious metals are thought to be more risky than investments in securities issued by large Canadian corporations (called "blue chip" stocks).
You need to know the level of risk that is appropriate for you. Remember, it is your money and it is your responsibility to be informed. No government agency can protect you against uninformed decisions made without consideration of the risks involved.
Where do I find reliable information about a security?
You can find information about the issuer and its securities:
- in financial pages of newspapers.
- through a stockbroker.
- in the financial press.
- in magazines.
- in industry reports.
- in financial reports from the issuer.
- in the prospectus.
What is a prospectus?
When an issuer is offering a security to the public for the first time the securities industry calls it a "primary distribution". When this occurs, the law requires that a broker give the investor a prospectus before making the sale. This is a document which gives investors information about the issuer and the securities being offered. It includes information about the reason for raising money, the business of the issuer, its financial soundness, what the issuer owns, and its managers and promoters.
A prospectus is not a "stamp of approval" of the security or a recommendation to buy that security. It is merely disclosure of certain facts required by law. You should always ask for information about the issuer.
What does the Securities Prevention Act do?
The Securities Act sets out rules under which the securities industry operates in New Brunswick. It regulates the information that companies must disclose to shareholders and to the public when they distribute securities. It governs the qualifications of those in the securities industry who advise and deal with the public. It also sets out offences for breaches of the law.
The New Brunswick Minister of Justice and Consumer Affairs appoints the New Brunswick Securities Commission to enforce the Securities Act. The Commission approves the registration of security issuers, brokers and salespersons. He or she also investigates complaints which may result in the suspension from registration of brokers or salespersons, the cancellation of the sale of a security, or court proceedings.
How does the law protect investors?
The Act prohibits:
- intentional misrepresentations.
- promises not made in good faith.
- false trades in a security.
- excessive fees and commissions.
- conduct intended to deceive the investor about the value of the security.
How do I purchase securities?
Except in unusual circumstances securities should only be sold by brokers who are registered with the New Brunswick Securities Commission. Brokers help find investments which meet your financial goals. The commission costs they charge you depend on the services they offer. A full service broker sells most types of securities. It acts as an advisor by providing you with information about the investment and by helping you to make your security selection. Brokers must have adequate knowledge of your financial needs before recommending a security to you.
For the more experienced investor there are discount brokers who do not offer any advice. As a result their commission costs are less than those of the full service dealers.
You may also buy from brokers such as mutual fund dealers, scholarship plan dealers or limited partnership dealers who are only allowed to sell certain types of securities.
Some individuals who call themselves "financial planners" are not always registered. They help to provide a client with a "master" financial plan and may offer advice on a broad range of financial issues. It is up to you as an investor to measure the competence of the person you choose to deal with.
What qualifications must brokers have?
Brokers must register with the New Brunswick Securities Commission to sell securities. In order to register, brokers must comply with prescribed standards of education, experience, knowledge of markets, integrity and financial resources. They must also successfully complete qualifying courses and exams before the New Brunswick Securities Commission will register them.
How will I know if a broker is registered?
Before buying or selling securities, ask for proof of registration or call the New Brunswick Securities Commission to check.
What should I ask myself before investing in a security?
- Is it what I want?
- How stable is it?
- What are the costs of buying?
- Are there continuing costs after purchase?
- How easily can it be sold?
- How honest and competent are those giving me advice?
- What risks am I willing to accept?
What should I do if I have a complaint?
- First ask the broker for an explanation.
- If the results are not satisfactory, make a complaint to the branch manager or senior officials of the employer.
- The employer may be a member of a Self-Regulatory Organization (SRO) such as a major stock exchange or the Investment Dealers' Association of Canada. You can contact the SRO to make a complaint. The SRO has the power to investigate and discipline its members.
- Contact the New Brunswick Securities Commission.
- Contact your local police department or the RCMP.
- See a lawyer to discuss the chance of legal action.
The New Brunswick Securities Commission is located at:
New Brunswick Securities Commission
85 Charlotte Street, Suite 300
Saint John, NB E2L 2J2
Reception: (506) 658-3060
Fax: (506) 658-3059
Toll Free: (866) 933-2222 (within NB only)
E-mail: information@nbsc-cvmnb.ca
INVESTOR TIPS
- Consider your overall investment goals.
- Make sure you understand the risks involved.
- Assess the honesty and integrity of those giving advice.
- Don't invest more than is reasonable.
- If the prospectus is unclear, ask for clarification.
- Keep informed about your investment.
- Keep copies of all documents you sign.
- Make sure you receive statements to which you are entitled.
- Don't be pressured into hasty decisions.
- Be wary of schemes which "guarantee" a quick profit.
- Don't buy over the telephone.
To get copies of other helpful pamphlets, check out the website of the New Brunswick Securities Commission.
Public Legal Education and Information Service of New Brunswick (PLEIS-NB) is a non-profit organization. Its goal is to provide New Brunswickers with information on the law.
PLEIS-NB receives funding and in-kind support from the federal Department of Justice, the New Brunswick Law Foundation and the New Brunswick Department of Justice and Consumer Affairs.
This pamphlet is not a complete statement of the law in this area and laws change from time to time. Anyone needing specific legal advice should contact a lawyer.
Published by:
P.O. Box 6000 Fredericton, N.B.
E3B 5H1 CANADA
Tel: (506) 453-5369
Fax: (506) 462-5193
Email: pleisnb@web.ca
Revised July 2009
ISBN: 1-55137-154-5
Disclaimer: Please note that our website contains general information about the law. This is not a complete statement of the law on particular topics. We try to update our publications often, but laws change frequently so it is important for you to check to make sure the information is up to date. The information in our publications is not a substitute for legal advice. To receive legal advice about your specific situation, you need to speak to a lawyer.
