Weekend Reading: Why “Alternatives” Are a Trap Edition

A major Canadian bank brokerage recently said that it wants 25 percent of client portfolios in “alts” within five years.

Translation: high-fee, hard-to-leave products.

What “Alts” Really Are

Advisors use “alts” as shorthand for alternative investments, anything outside plain-vanilla stocks, bonds, or cash. Think private mortgage pools, private apartment funds, private credit deals, hedge funds, and infrastructure partnerships.

The pitch is seductive: 8 to 12 percent yields, “uncorrelated” to markets, and the cachet of something “private.”

The reality is illiquid, opaque, and expensive.

Why the Industry Loves Them

Sticky assets keep money locked up even if clients want to leave. High margins matter because ETFs have driven fund fees toward zero, so alts remain a profit lifeline. Perceived exclusivity flatters both advisor and client because “private” sounds sophisticated.

When Retirement Income Depends on Liquidity

Picture a 68-year-old couple drawing $7,000 a month from their portfolio. They hold a $250,000 slice of a private mortgage fund that once promised quarterly redemptions. A housing slowdown hits and redemptions are “temporarily suspended.” Now their carefully planned RRSP/RRIF withdrawals are short by $1,500 a month, forcing them to sell equities in a down market or cut spending.

When You Want to Change Advisors

Another investor keeps $400,000 in a private REIT inside an RRSP. She decides to leave her advisor and move to a low-cost, self-directed platform.

The new financial institution can’t custody the private REIT units, so the transfer grinds to a halt. She either stays put and pays the old advisor’s fees, or sells if redemptions are even available and accepts a six- to twelve-month wait.

Real-World Cautionary Notes

These aren’t hypothetical headaches. Olympia Trust has faced class-action claims tied to failed syndicated-mortgage projects, and its BBB page is full of complaints about frozen or painfully slow redemptions. Courts haven’t pinned everything on Olympia, but the stories show how little control investors have once money is locked away.

Trez Capital Mortgage Investment Corp suspended redemptions on its five funds this summer.

Apartment and multifamily property investor Starlight Investments had to halt distributions in 2022 and 2023 due to rising interest rates.

These are just a few examples in the murky world of private investments.

How the Marketing Hooks You

Even today you can find ads online for private mortgage or REIT offerings that dangle “guaranteed by the borrower” or “secured by real estate with 8 percent annual income.” None of that equals a true guarantee.

Here’s how to read the fine print.

Spotting the Red Flags: A Quick Investor Checklist

• Where’s the guarantee? “Guaranteed by the borrower” is only a promise to pay and worthless if the borrower can’t.
• Liquidity: what are the exact redemption terms, notice periods, and past suspension history?
• Valuation: who prices the units and how often, and is there an independent appraisal?
• Fees: management, performance, trustee, and selling commissions should all be added up.
• Priority and collateral: are you first in line if something goes wrong or behind the bank?
• Transfer or custody: can your discount brokerage or new advisor even hold these units or will you be stuck until redemption?
• Track record in stress: ask for the fund’s redemption and default history, especially from 2020 to 2024. If you can’t answer these questions in plain English, you probably shouldn’t invest.

A Better Way to Diversify

If you want real estate, buy a liquid, low-cost REIT ETF. For income, build a GIC ladder or own a global bond ETF. A simple asset-allocation ETF already gives you exposure to every major sector and geography, priced daily with full transparency.

Bottom Line

Before buying anything “private,” remember Admiral Ackbar’s warning: it’s a trap!

This Week(s) Recap:

My writing this month includes reframing the CPP enhancement as a 122% increase from age 60.

So you’re about to retire? Here’s a first-year financial timeline with real numbers.

I wrote about finding financial clarity after losing a spouse.

Finally, don’t wait until 70. Why the time between retirement and age 70 are your prime tax planning years.

Promo of the Week:

Wealthsimple must be getting a good response to its latest 1% cash back bonus on account transfers. The no-fee platform has extended the deadline to register for the promotion until October 15th.

Once you’ve registered you have 30 days to initiate a transfer to qualify for the promotion.

I’ve already spoken with dozens of readers and clients who have taken advantage of this promotion and are on their way to receiving thousands of dollars in cash back:

• Open a Wealthsimple account (here, use my referral link and get an extra $25: http://wealthsimple.com/invite/FWWPDW), and;
• Once you’ve opened an account, or if you already have an existing account, you’ll want to register for the new Summer Match offer: http://wsim.co/Summer-Margin-Match-2025
• Initiate an account transfer from your Wealthsimple platform – it’s easy – within 30 days of registration.

One note: make sure to also open a Wealthsimple chequing account – that’s where the cash back bonus will be deposited.

When transferring accounts from one institution to another I want you to keep in mind my Las Vegas analogy:

“What happens in your registered account stays in your registered account. You’re just moving across the street to a cheaper hotel with better amenities. You’re still in Vegas.”

This applies to all registered accounts (RRSP, RRIF, LIRA, LIF, TFSA, RESP, etc.).

Open an account at Wealthsimple, open the appropriate account type(s), initiate the transfer(s), and Wealthsimple’s back office contacts your existing bank’s back office to request the transfer. This is a federally regulated event and happens every day, and no break-up conversations need to be had at all.

Weekend Reading:

FAIR Canada CEO JP Bureaud says one investment scam can erase a lifetime of savings. A compensation fund can help bring some of it back.

During your working years, you may receive tax refunds due to the withholding tax on your paycheque—but things change in retirement.

Russell Sawatsky shows a case study comparing a lifetime of RRSP contributions versus investing in a non-registered account.

What to do when your vision of retired life doesn’t match your spouse’s.

Ben Felix says the idea that covered calls generate income is financial bullshit. These strategies are mechanically expected to underperform their underlying equity, and increasingly so at higher targeted levels of distributions:

A look at Camp FIRE – a four-day retreat north of Toronto for followers of the financial independence, retire early movement.

Millionaire Teacher Andrew Hallam shares the surest way to make a fortune buying stocks.

A MoneySense reader wants to sell stocks and buy ETFs but has concerns about the tax implications. Here’s what to keep in mind.

Advice-only planner Andrea Thompson asks: is putting in $2,500 and call it a day really an education funding plan?

Finally, Rob Carrick is back and on Substack with his thoughts on a “bull” market.

Have a great weekend, everyone!