An investors advocacy group says that there should be a presumption that leverage is unsuitable for retail investors.

The Canadian Foundation for Advancement of Investor Rights (FAIR Canada) released its comments Friday to the Mutual Fund Dealers Association of Canada amendments that propose to explicitly require firms and reps to ensure that the use of leverage is suitable for investors prior to recommending borrowing to invest.

FAIR Canada recommends that there be a presumption that leverage is unsuitable for retail investors, “which would place the onus to prove that leverage is in fact suitable for that client on salespeople who make such a recommendation”.

FAIR Canada also says that it believes that several of the supervisory review minimum criteria outlined in the proposed amendments will be too low to adequately protect investors. “We call for additional or increased protections relating to investment knowledge; risk tolerance; net worth; gross income; employment status; and ability to withstand loss,” it says.

The advocacy group also recommends full disclosure of commissions and other remuneration arising from leverage recommendations, and propose a certification requirement, that would require reps to certify that they have explained the risks associated with leverage clearly, and the client would have to acknowledge that the risks have been explained and that they understand them.

Additionally, FAIR Canada reiterates its recommendation that securities regulators should implement a requirement that all client recommendations be in the client’s interest.