Financial advisors who are also licensed mortgage brokers will face amended disclosure requirements effective July 1.

The Toronto-based Financial Services Commission of Ontario (FSCO) has updated the disclosure documents known as Form 1 and Form 2, which pertain to private mortgages, including syndicated mortgages. The purpose of the amendments is to help the growing number of investors who have shown an interest in syndicated mortgages over the past few years to better understand these investments.

“In today’s low-interest environment, syndicated mortgages may be attractive to investors seeking investments with a potentially higher rate of return,” the regulator states in an emailed statement. “However, there are risks associated with syndicated mortgages that may not be appropriate for some investors. The new forms will help increase transparency, enhance consumer protection and allow investors/lenders to make more informed investment decisions.”

A syndicated mortgage is a mortgage held by two or more private investors on a residential or commercial property. The mortgage participants negotiate investment returns. Only licensed mortgage brokers may sell such investments. In January, the Toronto-based Mutual Fund Dealers Association of Canada sent out a bulletin reminding advisors who are licensed as mortgage brokers that they must conduct such business through their dealer. Advisors licensed through the Toronto-based Investment Industry Regulatory Organization of Canada must report syndicated mortgage business in accordance with that SRO’s “outside business activities” rules.

Form 1 must be completed by a licensed mortgage broker on behalf of a mortgage brokerage and provided to the prospective lender or investors of a mortgage, such as a syndicated mortgage. Form 2 must be completed by a licensed mortgage broker for lenders or investors who are planning on renewing an investment in a mortgage. FSCO last updated these two forms in 2009.

The forms have been amended and broken out into the following five forms:

  1. Form 1 – Investor/Lender Disclosure Statement for Brokered Transactions;
  2. Form 1.1 – Investor/Lender Disclosure Statement for Brokered Transactions: Addendum for Construction and Development Loans;
  3. Form 1.2 – Investor/Lender Disclosure Statement for Brokered Transactions: Waiver for Reducing the Waiting Period;
  4. Form 2 – Renewal Form; and
  5. Form 2.1 – Investor/Lender Disclosure Statement for Brokered Mortgages on Renewal: Waiver for Reducing for Waiting Period.

The forms were amended in an effort to make them clearer and more user-friendly for brokers and their clients. For example, FSCO expanded the “caution” section on Form 1 and changed the format to flag key risk areas that the potential investor would need to understand in order to make an informed decision.

As well, breaking out the disclosure forms into separate documents highlights important information and ensures clients understand the consequences of their decision to sign.

For example, in signing Forms 1.2 or 2.1, investors are waiving their rights to have two business days to consider an investment. “This is an important decision,” FSCO wrote in the same email, “and it should be made very clear that by signing this waiver, the investor/lender is waiving a right and agreeing to reduce the time period to one business day.”