Retail-investor advocate seeks greater independence

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Canada's main organization representing small investors is launching a fundraising campaign to become self-supporting and independent of the regulators it lobbies for reforms.

Montreal billionaire Stephen Jarislowsky has already committed $2-million to launch a new endowment fund for the Canadian Foundation for the Advancement of Investor Rights – known as FAIR Canada – but his pledge is conditional on FAIR raising a further $4-million this year to match his donation on a 2-to-1 basis.

FAIR executive director Neil Gross said the organization has relied on funding from the Investment Industry Regulatory Organization of Canada (IIROC), which regulates brokerage firms in Canada, and from the Ontario Securities Commission, but it wants to become more self-sufficient. A new endowment fund likely can't generate enough income to fully cover FAIR's annual budget, which tops $800,000, but would provide a secure base of funding.

"We would like to be self-funding," Mr. Gross said. "Our ideal would be to have an endowment fund that allows us to be financially completely independent so we don't have to lose productive time and resources looking for funding, and also so that we are completely unencumbered in what we do."

Mr. Jarislowsky, who has been a director on FAIR's board since its founding in 2008, said he has a passion for good governance and shareholder rights, and believes no other organization in Canada is doing the same type of policy work on behalf of retail investors.

Mr. Jarislowsky previously helped launch the Canadian Coalition for Good Governance, which represents institutional investors seeking better governance practices at listed companies, and helped fund the Quebec-based Institute for Governance of Private and Public Organizations, which also advocates for broad governance reforms.

"I felt we were leaving out one particular constituency, which is the individual investor, who has been screwed more than anybody else in Canada," Mr. Jarislowsky said. "I thought this is the third leg of the chair … the chair was missing this major constituency."

FAIR, which is a registered charity, has focused on topics such as fighting financial fraud, reforming mutual fund fees, raising standards for people working in the financial sector, and opposing expanded powers for the less regulated "exempt" market.

Mr. Gross, a lawyer who previously represented clients suing financial firms, said FAIR's work is intended to be a "counterbalance" to the raft of corporations and business groups lobbying for rule changes that will benefit them but not help investors.

"There was always a very active, well-represented lobby on the investment business side to present their views of the issues, but there was no one who could comprehensively deal with the issues from the investor perspective," he said.

Although FAIR's work involves advocating reforms to the same regulators who fund the organization, Mr. Gross said the funding has come with "no strings attached."

IIROC initially provided a $3.75-million grant to help launch FAIR in 2008, using money the regulator collected from fines and penalties. FAIR secured a further $1.7-million in 2012 from IIROC and the OSC to fund another two years of operation.

FAIR founder Ermanno Pascutto, who stepped down as executive director earlier this year but remains a director, said FAIR needs its own financing to ensure it will continue to exist and operate independently.

"The way we've been for the last several years is we run up against the wall and we're about to run out of money and start to lay off staff when we get a new tranche of funding," he said. "We're hoping we can solve that problem on a long-term basis and have a permanent organization that is here to speak for the retail investor."

IIROC chief executive officer Susan Wolburgh Jenah said the regulator agreed to help launch FAIR because there was no major retail investor organization doing policy advocacy in Canada while the United States has large consumer organizations working in the investment realm. "It's harder for regulators to tap into the retail investor perspective, because retail investors aren't organized," she said.

Ms. Wolburgh Jenah said it is now up to FAIR to become self-sufficient, and there is no plan for IIROC to continue giving it operating funds.

"We've provided a very generous contribution to this organization, and the board has felt from Day One that they needed to develop their own funding plan."

Mr. Jarislowsky said he hopes his seed money will prompt financial firms to also contribute to FAIR's endowment fund because its work is directly aimed at protecting their retail customers.

But Mr. Gross said FAIR's board is still weighing whether to limit donations from the financial industry because there could be a perception of conflict-of-interest. Some of FAIR's policy recommendations – such as changing how fees are paid to advisers who sell mutual funds – have run contrary to views of financial companies.

"Any organization struggles with who they want to be seen to have their support come from," he said.