After steadily gaining momentum for the past few years, the investor advocacy movement now appears to be at risk of stalling.

Retail investors, long the silent majority within the capital markets sphere, had gained a couple of compelling voices relatively recently. In 2008, the Canadian Foundation for Advancement of Investor Rights (a.k.a. FAIR Canada) was established, with the goal of becoming an independent investor advocate. The Ontario Securities Commission (OSC) soon followed with the creation of its investor advisory panel (IAP) in August 2010; then, earlier this year, the OSC promised to set up a new branch dedicated to investor interests, to be known as the Office of the Investor.

All appeared to be rosy.

However, this energy appears of late to be in danger of dissipating.

FAIR Canada’s founder and driving force, Ermanno Pascutto, is planning to leave that organization. The IAP is in transition, and the Office of the Investor has yet to be heard from at all. What once appeared to be a growing movement on behalf of investors now is flagging.

Perhaps the biggest risk is FAIR Canada, which has grown into an exceptionally forceful and prolific investor advocate. In 2011, FAIR Canada produced 25 submissions on various regulatory policy initiatives and industry consultations. And the advocacy group has almost matched that total through the first 10 months of this year.

In the process, FAIR Canada brings a much needed investor perspective to securities regulators, the industry’s self-regulatory organizations and government policy-makers.

Replacing Pascutto will not be easy. He had dreamed up the idea of FAIR Canada, secured its initial funding from the Investment Industry Regulatory Organization of Canada (IIROC), and its second round of funding from the OSC and IIROC this past summer. Pascutto also has been FAIR Canada’s public face throughout its existence.

Pascutto has indicated that he plans to stay on at FAIR Canada until a replacement is found, and that he expects to stay involved in some capacity beyond that. But, if he does leave, it’s not hard to imagine the advocacy group will be diminished.

At the same time, the OSC’s efforts to ensure a greater investor voice appear to be in limbo. Since the IAP reached the end of its initial, two-year term in August, the panel is without a chairperson, is short several members and has not had a meeting since July.

Earlier this year, the OSC announced that several of the IAP’s members (including its chairman) had decided not to sign up for another stint. The deadline for replacement applications was Aug. 17; as of mid-October, no new members of the panel had been named.

The OSC insists that the appointments are coming soon, and that the panel will not be allowed to fade quietly away.

“We expect to make an announcement very shortly with respect to new members, as well as the new IAP [chairperson],” says Jill Homenuk, director of communications and public affairs with the OSC.

Despite the OSC’s tardiness in appointing new members to the IAP, the regulator is still supporting the panel. Although the OSC declined the IAP’s suggestion that a full-time staffer be hired for the panel and is keeping its annual research budget at $50,000, the OSC has said that it will consider funding specific research projects that exceed the IAP’s stated budget. The OSC has broadened the panel’s mandate slightly to allow it to go beyond just commenting on the OSC’s rule proposals.

The OSC’s new Office of the Investor is still an unknown quantity. Intended as an entirely new branch devoted to ensuring that the investor perspective is considered in everything the OSC does, this office has yet to establish a public profile.

The OSC has hired Eleanor Farrell from the Canada Pension Plan Investment Board as the director of the new branch, and added the office to the OSC’s organizational chart. But, from a public perspective, that’s about it.

Homenuk says Farrell “will focus on issues of importance to investors and ensure these issues are carefully considered in our policy and operational activities.”

With a series of important investor initiatives in the pipeline, the IAP and the Office of the Investor are not likely to be able to remain silent for much longer. In the coming weeks, the OSC is slated to publish its long-awaited consultation paper on the possible introduction of a “best interest” duty for financial advisors, in concert with the rest of the Canadian Securities Administrators.

The OSC also is scheduled to issue a discussion paper on investment fund fees. And the regulator has promised some reforms to bolster participation in the Ombudsman for Banking Services and Investments.

The OSC also is considering some controversial rule reforms, which the investment industry has lobbied heavily against but investor advocates support, including: proposed revisions to the Fund Facts disclosure documents, primarily to improve risk disclosure; and requirements for firms to be more transparent to clients about both the costs of investing and investments’ performance.

Pascutto suggests that the existence of these various pro-investor initiatives are more important than what’s going on with the various advocacy groups, as they indicate a shift has taken place within the regulators over the past couple of years – now, he notes, regulators are championing investor protection in a way they haven’t in the past.

Ideally, Pascutto adds, investor advocates wouldn’t be needed at all, except to balance the industry’s lobbying efforts.

Yet, with all of these critical issues on the table, now is not the time for investors to lose their voice.

© 2012 Investment Executive. All rights reserved.