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Email this11:02 am
March 30, 2017
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I followed this story and thought I read something that it was margin call from Laurentian bank that forces PACE to liquidate the position. Is that not true ?
It sounds like PACE Securities just decide to shut everything down based on some of the more recent comment here ?
Regarding who is qualified to sell what and where, when I opened account for GIC 2 years ago, the person I spoke to asked if I am interested to put a token amount to their "dividend" shares, which I did. Never know whether that person is CU or Securities and what credentials he has. Those shares are not the preferred tho. Are people being pitched the prefs as a 5% div with no risk ?
11:20 am
May 19, 2020
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We were pitched the preferred shares (PFL and FHH) at 5% fixed dividend, with a potential bonus 2% dividend to be low risk. Although, the forms that we have do have a tick mark the says this is a high-risk however our adviser said: "this is just standard stuff blah blah blah, don't worry about this ,they are low-risk!"
2:14 pm
May 15, 2020
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savemoresaveoften said
I followed this story and thought I read something that it was margin call from Laurentian bank that forces PACE to liquidate the position. Is that not true ?
It sounds like PACE Securities just decide to shut everything down based on some of the more recent comment here ?Regarding who is qualified to sell what and where, when I opened account for GIC 2 years ago, the person I spoke to asked if I am interested to put a token amount to their "dividend" shares, which I did. Never know whether that person is CU or Securities and what credentials he has. Those shares are not the preferred tho. Are people being pitched the prefs as a 5% div with no risk ?
PCU is winding up the Securities arm (PF Ltd). They sent and posted why in their FAQ site (linked earlier in the thread) Presumably you've received communications already on your investments there. Were people pitched the preferred shares with no risk attached? I suppose if you consider 'low' which is marked on something I have seen in relation to them then that is all that can be said there. That is what's open to argument and the fact that new investors or those with very limited capital and knowledge shouldn't have been suitably sold such a product. They pretty much put all of my eggs from the basket into them.
When the value took a dive in the fall I questioned it immediately and received communication along these lines (edited) ::
"In November PFL changed the way the we price these securities, including PACE Financial Limited.
PFL hired an independent third-party firm, RSM Canada to value PFL. Their valuation is based on what a reasonable person using their assumptions would be willing to pay for the shares at a particular point in time, in this case August 31, 2019. Going forward PFL will be obtaining third party valuations at least annually.
The valuation includes a calculation that discounts the income stream produced from PFL’s holdings until maturity. The difference between the original offering price and current price is this different discount rate. As the shares approach maturity, the gap between the rates will decrease and they will converge at par.
This does not change the fact that PFL will continue to pay the dividends and that shares mature at the price issued. I do not anticipate a decrease to continue. Maturity is 2022. As shares are revalued each year share price should move up until maturity at par.
There is No issue with the actual investments held by Pace Financial limited just a way in how the price is set in the interim. This may make your statements not look well but as shares move closer to maturity the price should return to the par value. "
3:57 pm
April 6, 2013
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savemoresaveoften said
I followed this story and thought I read something that it was margin call from Laurentian bank that forces PACE to liquidate the position. Is that not true ?
It sounds like PACE Securities just decide to shut everything down based on some of the more recent comment here ?
…
I don't think the margin call forced PACE Financial to liquidate all of their bonds. If they were leveraged 3:1, then they had $15 of stuff for each $5 share. If they are now only worth $1.62 of the $15, then they liquidated about 1 - $1.62 / ($5 x 3) = 89.2% to pay Laurentian Bank Securities back the $10 they owed.
I suspect with the drop in assets under management, the expenses of running PACE Financial became too much for the assets left. I don't know how much money PACE Financial got from those preferred shares. If it was something like $10 million, then a 3% annual management fee would allow for $300,000 per year for running it. If 2/3 of that $10 million were lost, then the management fee drops to just $100,000 a year.
I suspect something similar with PACE Securities. With the market drop, it no longer collected enough in mutual trailer fees to sustain it. With what happened to the PACE Financial preferred shares, going from $5 to $1.62, no-one would be investing in them now. That ends those fat up-to-10% private placement commissions.
That could explain why no-one was interested in buying PACE Securities. Probably much cheaper for a competitor to put an ad in the local media offering current PACE Securities clients a $25 Tim Horton's gift card and to cover their transfer fees. The competitor would get the clients without any of the legal liabilities from the preferred shares shenanigans.
Without more money from PACE Credit Union, PACE Securities would eventually fail. Instead of waiting for that, PACE Credit Union probably decided enough was enough and directed PACE Securities to windup.
4:10 pm
April 6, 2013
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sevenup said
We were pitched the preferred shares (PFL and FHH) at 5% fixed dividend, with a potential bonus 2% dividend to be low risk. Although, the forms that we have do have a tick mark the says this is a high-risk however our adviser said: "this is just standard stuff blah blah blah, don't worry about this ,they are low-risk!"
Unfortunately, the challenge now is that PACE has a document signed by the investor that the risk was disclosed.
Disclosure is all that is needed. There's no requirement that the investor must also be convinced that the risk is high.
4:22 pm
April 6, 2013
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PhDJohn said
I asked her. She had nothing to do with the securities side. She did mortgages and loans, and also pace investment products (investment shares, preferred shares, gics, and whatever else the branch had).
That's an interesting point.
I'm not sure now that private shares need to be sold through an IIROC dealer. Those PACE Credit Union shares and PACE Credit Union investment shares are private shares too. They aren't sold to members through an IIROC dealer. I also didn't buy my Sunova Credit Union share through an IIROC dealer.
If one visits the Ontario Securities Commission page The Exempt Market and clicks on the "Who needs to register?" tile, one sees this significant statement:
Although there is no requirement for companies to distribute securities through a registrant, in many cases this will be necessary to sell securities in the exempt market. …
5:22 pm
May 19, 2020
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Norman1 said
sevenup said
We were pitched the preferred shares (PFL and FHH) at 5% fixed dividend, with a potential bonus 2% dividend to be low risk. Although, the forms that we have do have a tick mark the says this is a high-risk however our adviser said: "this is just standard stuff blah blah blah, don't worry about this ,they are low-risk!"Unfortunately, the challenge now is that PACE has a document signed by the investor that the risk was disclosed.
Disclosure is all that is needed. There's no requirement that the investor must also be convinced that the risk is high.
I don’t know about that. The advisor has to make sure that you understand the risk of investment and he/she should also be in agreement with what you are signing. The discrepancy is misleading and ultimately can be proved to be fraudulent. The advisor told us over and over, the risk is low and the stuff on paper is just standard and “not to worry about it”.
11:04 pm
April 6, 2013
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sevenup said
I don’t know about that. The advisor has to make sure that you understand the risk of investment and he/she should also be in agreement with what you are signing. The discrepancy is misleading and ultimately can be proved to be fraudulent. The advisor told us over and over, the risk is low and the stuff on paper is just standard and “not to worry about it”.
That's actually not the case.
The good ones will make sure one understands the risk. But, it is not an obligation. Their obligation is only to determine whether or not the investment is "suitable", not whether or not it is in the investor's best interest. They also have an obligation to provide a copy of the prospectus or offering memorandum.
That's because they are actually salespeople, not investment counsellors who, in contrast, do have an obligation to consider the investor's best interest.
If the person believes in the advice given, then it is not fraudulent. The person may incompetent. That's why many of them don't give any signs of lying. Victims think they've been had by a practised con artist. The reality is that the person giving the advice was not lying. The person was just incompetent at assessing investment risk.
6:17 am
March 30, 2017
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Norman1 said
savemoresaveoften said
I followed this story and thought I read something that it was margin call from Laurentian bank that forces PACE to liquidate the position. Is that not true ?
It sounds like PACE Securities just decide to shut everything down based on some of the more recent comment here ?
…I don't think the margin call forced PACE Financial to liquidate all of their bonds. If they were leveraged 3:1, then they had $15 of stuff for each $5 share. If they are now only worth $1.62 of the $15, then they liquidated about 1 - $1.62 / ($5 x 3) = 89.2% to pay Laurentian Bank Securities back the $10 they owed.
I suspect with the drop in assets under management, the expenses of running PACE Financial became too much for the assets left. I don't know how much money PACE Financial got from those preferred shares. If it was something like $10 million, then a 3% annual management fee would allow for $300,000 per year for running it. If 2/3 of that $10 million were lost, then the management fee drops to just $100,000 a year.
I suspect something similar with PACE Securities. With the market drop, it no longer collected enough in mutual trailer fees to sustain it. With what happened to the PACE Financial preferred shares, going from $5 to $1.62, no-one would be investing in them now. That ends those fat up-to-10% private placement commissions.
That could explain why no-one was interested in buying PACE Securities. Probably much cheaper for a competitor to put an ad in the local media offering current PACE Securities clients a $25 Tim Horton's gift card and to cover their transfer fees. The competitor would get the clients without any of the legal liabilities from the preferred shares shenanigans.
Without more money from PACE Credit Union, PACE Securities would eventually fail. Instead of waiting for that, PACE Credit Union probably decided enough was enough and directed PACE Securities to windup.
If its leveraged (I also read 3x somewhere, prob here), then its the same as buying on margin and will subject to margin call, just like stocks. During the bad times, brokers also tighten their margin rule and the margin clerk sharpens his pencils, ready to strike anybody out to protect its firm.
Unfortunately if the prefs hold a lot of BBB or lower bonds thru leverage, I am not surprised if they did get a margin call and Pace CU unwilling to prop it up and let it fail/wind down.
Sounds like Pace did "disclose" its high risk. Never trust what an advisor says "in words". Same thing happened to Lehman mini-bond holders (mostly retail) during the financial crisis...
6:37 am
October 6, 2018
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Norman1 said
savemoresaveoften said
I followed this story and thought I read something that it was margin call from Laurentian bank that forces PACE to liquidate the position. Is that not true ?
It sounds like PACE Securities just decide to shut everything down based on some of the more recent comment here ?
…I don't think the margin call forced PACE Financial to liquidate all of their bonds. If they were leveraged 3:1, then they had $15 of stuff for each $5 share. If they are now only worth $1.62 of the $15, then they liquidated about 1 - $1.62 / ($5 x 3) = 89.2% to pay Laurentian Bank Securities back the $10 they owed.
I suspect with the drop in assets under management, the expenses of running PACE Financial became too much for the assets left. I don't know how much money PACE Financial got from those preferred shares. If it was something like $10 million, then a 3% annual management fee would allow for $300,000 per year for running it. If 2/3 of that $10 million were lost, then the management fee drops to just $100,000 a year.
I suspect something similar with PACE Securities. With the market drop, it no longer collected enough in mutual trailer fees to sustain it. With what happened to the PACE Financial preferred shares, going from $5 to $1.62, no-one would be investing in them now. That ends those fat up-to-10% private placement commissions.
That could explain why no-one was interested in buying PACE Securities. Probably much cheaper for a competitor to put an ad in the local media offering current PACE Securities clients a $25 Tim Horton's gift card and to cover their transfer fees. The competitor would get the clients without any of the legal liabilities from the preferred shares shenanigans.
Without more money from PACE Credit Union, PACE Securities would eventually fail. Instead of waiting for that, PACE Credit Union probably decided enough was enough and directed PACE Securities to windup.
I'd like to discuss this. Thanks Norman1. If the margin call during the pandemic crash, resulted in the major decline in value, then for whatever bonds are left, as long as they hold those until they mature (provided the businesses withstand the pandemic) they should recover a substantial amount. Even world economies should recover from the pandemic with time. So let's say that $1.62 turns to $3.50 approximately, when the debt matures. For the remaining $1.50 ($5/unit - $3.50), I think Pace Credit Union should cover that to make things right. That would be a drop in the bucket for a $1.2 Billion dollar credit union. As you said before, if it was a $10M portfolio, then that $1.50 would be 30%, or $3M. If it was $20M in total, it would be $6M. Which again, would not be all that difficult for Pace Cu.
7:22 am
March 30, 2017
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PhDJohn said
I'd like to discuss this. Thanks Norman1. If the margin call during the pandemic crash, resulted in the major decline in value, then for whatever bonds are left, as long as they hold those until they mature (provided the businesses withstand the pandemic) they should recover a substantial amount. Even world economies should recover from the pandemic with time. So let's say that $1.62 turns to $3.50 approximately, when the debt matures. For the remaining $1.50 ($5/unit - $3.50), I think Pace Credit Union should cover that to make things right. That would be a drop in the bucket for a $1.2 Billion dollar credit union. As you said before, if it was a $10M portfolio, then that $1.50 would be 30%, or $3M. If it was $20M in total, it would be $6M. Which again, would not be all that difficult for Pace Cu.
Junk bond value drops substantially results in margin call, new margin not met results in liquidation. End result is a permanent drop in value of the prefs. When the margin call happens, PACE needs to put up more $$ to satisfy the margin requirement or the funding bank will liquidate as much position as needed to protect its own interest (not just the one that declines in value.) Sounds like PACE either not have the capacity or desire to fund the extra margin and decide to liquidate and unwind the prefs. Given how bad market was back in March, they probably unable to secure any new funding even if they want to.
8:03 am
May 19, 2020
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Norman1 said
sevenup said
I don’t know about that. The advisor has to make sure that you understand the risk of investment and he/she should also be in agreement with what you are signing. The discrepancy is misleading and ultimately can be proved to be fraudulent. The advisor told us over and over, the risk is low and the stuff on paper is just standard and “not to worry about it”.
That's actually not the case.
The good ones will make sure one understands the risk. But, it is not an obligation. Their obligation is only to determine whether or not the investment is "suitable", not whether or not it is in the investor's best interest. They also have an obligation to provide a copy of the prospectus or offering memorandum.
That's because they are actually salespeople, not investment counsellors who, in contrast, do have an obligation to consider the investor's best interest.
If the person believes in the advice given, then it is not fraudulent. The person may incompetent. That's why many of them don't give any signs of lying. Victims think they've been had by a practised con artist. The reality is that the person giving the advice was not lying. The person was just incompetent at assessing investment risk.
We were working with an employee of PCU (who later became an employee of PSC) that we perceived to be an investment counsellor. His card and credentials say "investment advisor". Are these two things different? Is the onus on the investor to extract the meaning of his title?
9:10 am
October 6, 2018
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savemoresaveoften said
Junk bond value drops substantially results in margin call, new margin not met results in liquidation. End result is a permanent drop in value of the prefs. When the margin call happens, PACE needs to put up more $$ to satisfy the margin requirement or the funding bank will liquidate as much position as needed to protect its own interest (not just the one that declines in value.) Sounds like PACE either not have the capacity or desire to fund the extra margin and decide to liquidate and unwind the prefs. Given how bad market was back in March, they probably unable to secure any new funding even if they want to.
Yes, I understand that. I was trying to say if they hold the debt until they mature, then that will positively impact the value of the investment. What's leftover, afterwards, Pace Credit Union should cover the difference. Which on Norman1's point, if it is a $10M portfolio, it would cost $3M to them, which for a Credit Union that has $1.2 billion, is a drop in the bucket.
10:37 am
April 6, 2013
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sevenup said
We were working with an employee of PCU (who later became an employee of PSC) that we perceived to be an investment counsellor. His card and credentials say "investment advisor". Are these two things different? Is the onus on the investor to extract the meaning of his title?
Yes, the two titles are very different. "Investment counsellor" and "investment adviser" are protected titles that only certain persons can use.
In contrast, we found that "investment advisor" is not a protected title outside of Québec. Outside of that province, anyone can hold themselves out as an investment advisor.
December 2016 MoneySense article Do you have a financial advisor or adviser? has more details.
It is highly unlikely you spoke with an investment counsellor at PACE Credit Union or PACE Securities. Investment counsellor don't work on commission. They charge a management fee around 2% per year. Consequently, they will not work with clients with less than $750,000 to $1 million for them to manage because there are human limits on how many clients a counsellor can properly look after in a year.
11:37 am
October 6, 2018
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The product above, was the same product I purchased. That was done at a branch, and she was known as an advisor. Given it was a pace product, I believe only pace staff can speak to members about it.
11:47 am
May 19, 2020
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Norman1 said
sevenup said
We were working with an employee of PCU (who later became an employee of PSC) that we perceived to be an investment counsellor. His card and credentials say "investment advisor". Are these two things different? Is the onus on the investor to extract the meaning of his title?
Yes, the two titles are very different. "Investment counsellor" and "investment adviser" are protected titles that only certain persons can use.
In contrast, we found that "investment advisor" is not a protected title outside of Québec. Outside of that province, anyone can hold themselves out as an investment advisor.
December 2016 MoneySense article Do you have a financial advisor or adviser? has more details.
It is highly unlikely you spoke with an investment counsellor at PACE Credit Union or PACE Securities. Investment counsellor don't work on commission. They charge a management fee around 2% per year. Consequently, they will not work with clients with less than $750,000 to $1 million for them to manage because there are human limits on how many clients a counsellor can properly look after in a year.
Thank you for this clarification, I had no idea. How many people out there know this difference? We didn't walk into a flea market and purchase pref shares using most of our life savings, we walked into an established, credible Credit Union. They hired "sales" people who lied and deceived us for a measly 5% dividend, and said it was low risk. These sales people working for Pace may not be accountable, but Pace is.
12:06 pm
October 6, 2018
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Agreed. I think they themselves know it too. We're in early days, but they should provide some form of an update soon.
6:49 pm
March 30, 2017
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PhDJohn said
Yes, I understand that. I was trying to say if they hold the debt until they mature, then that will positively impact the value of the investment. What's leftover, afterwards, Pace Credit Union should cover the difference. Which on Norman1's point, if it is a $10M portfolio, it would cost $3M to them, which for a Credit Union that has $1.2 billion, is a drop in the bucket.
My understanding is Pace do not have the luxury or option to "hold the debt to maturity". So its not a question of "if". Once margin call happens and the extra margin amount not met, the funding bank will just sell/liquidate the position. It is in the lending agreement and the bank has the full right to do so. Pace may not even be fully aware until after the fact.
8:53 pm
April 6, 2013
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PhDJohn said
I'd like to discuss this. Thanks Norman1. If the margin call during the pandemic crash, resulted in the major decline in value, then for whatever bonds are left, as long as they hold those until they mature (provided the businesses withstand the pandemic) they should recover a substantial amount. Even world economies should recover from the pandemic with time. So let's say that $1.62 turns to $3.50 approximately, when the debt matures. For the remaining $1.50 ($5/unit - $3.50), I think Pace Credit Union should cover that to make things right. That would be a drop in the bucket for a $1.2 Billion dollar credit union. As you said before, if it was a $10M portfolio, then that $1.50 would be 30%, or $3M. If it was $20M in total, it would be $6M. Which again, would not be all that difficult for Pace Cu.
I'm not so sure that $1.62 will become $3.50. That's about a 116% increase.
That $5 to $1.62 was a 67.6% drop. That was with a supposed 3:1 leverage. So, the underlying investments only dropped about 67.6% / 3 = 22.5%.
Without 3:1 leverage on the recovery, the reversal of that 22.5% drop to $1.62 would only come back up to about $2.09. 
Also, the Ontario credit union regulator would question why PACE Credit Union is paying millions to a small group of members when no legal liability has been established. It would appear unfair to the other members. The regulator could pointedly ask the credit union if it is having a relapse of "governance issues".
Recent regulatory history is still quite fresh. I think the current board running the credit union would quickly realize what that veiled question leads to.
Also, PACE Credit Union is not a $1.2 billion company. The 2019 financial statements show a net worth of about $52.3 million.
8:48 am
May 15, 2020
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“ Also, the Ontario credit union regulator would question why PACE Credit Union is paying millions to a small group of members when no legal liability has been established. It would appear unfair to the other members. The regulator could pointedly ask the credit union if it is having a relapse of "governance issues" “
“ Recent regulatory history is still quite fresh. I think the current board running the credit union would quickly realize what that veiled question leads to. “
> Great points of course and certainly being talked about at the table currently I’m sure. The potential for a widespread public relations nightmare over this should presumably have some weight to what the CU intends to do about this obviously otherwise a class action suit which will also play out in the courts of public opinion much more different than the current governance problem that’s being whitewashed is highly likely. That’s more of a ‘this really affects us and not our membership per say and this is how we’re handling it’.
What’s clearly apparent now has stripped members of life savings through simple faith in the CU for lack of a better description, but sort of a key aspect to why people bank there. This is a different fiasco which has occurred under their noses and won’t go away with a changing of the guard. Regardless of the legalities involved with the CU’s position it isn’t something we hope they will rely upon as a response to this. That’s pretty much saying ‘sorry, not my problem technically, eat it’
Great message for the other 14k worth of membership to receive as well. Even if I wasn’t wrapped up in this problem that would be enough to make me run for the hills, even over to Duca. I’m just saying that for arguments sake have no idea of how that financial institution works but the point is, there’s big risk on the horizon for them to not consider ways to bury this.
Please write your comments in the forum.