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MUTUAL FUNDS: SPECIAL INVESTIGATION: INDUSTRY VOICE

Speaks for all investors, mutual fund group says

MUTUAL FUNDS REPORTER

Tom Hockin is remarkably at ease for a man with the weight of close to half a trillion dollars resting on his shoulders.

As president and chief executive officer of the Investment Funds Institute of Canada, Mr. Hockin is the professional public face of the mutual fund industry and its $474-billion in assets, a sum that dwarfs the $70.5-billion Canada Pension Plan. It represents the nest eggs of about 10 million Canadians who own mutual funds.

"It's not a lot of rich people. It's average Canadians' money," Mr. Hockin said.

Critics argue that IFIC has forgotten the interests of those average Canadians. They claim IFIC is simply a lobby group out to further the interests of the fund industry, a who's who of 200 financial services giants. It's an industry under a cloud, both due to vagaries in the market and a crackdown in the United States. And it's been working very hard to ensure that legislation and regulations further the association's goals.

Glorianne Stromberg, a former OSC commissioner and author of a report calling for sweeping reform of the industry, believes marketing interests are guiding the institute's mandate.

"There isn't really anybody out there speaking for the investor . . . I don't think IFIC can in any way lay claim to that role," she said.

The way Mr. Hockin sees it, the interests of investors and the industry are one and the same. "There should be no space between," he said. The sector's future rests on trust and integrity, values embraced within IFIC's code of ethics. Institute members must adhere to the code's principles, tenets that forbid portfolio managers from personal trading and receiving gifts.

The code of ethics figures high on Mr. Hockin's list of accomplishments during his 10 years in the institute's executive office. Lobbying efforts led to a boost in foreign RRSP content and he helped soften the divisions between IFIC's fund managers and dealers with competing interests. The institute does not disclose its budget or spending. Under a complex formula, members pay an annual fee based on assets under management.

These days, IFIC is keeping a low profile. A series of trading scandals at U.S. mutual fund companies has shaken the faith of investors in the investment community. The Ontario Securities Commission is investigating the market timing practices of this country's mutual funds.

"You do feel you are living under a shadow," Mr. Hockin said.

Dan Hallett, president of Dan Hallett & Associates Inc. in Windsor, Ont., is "surprised" by IFIC's relative silence on market timing, especially in contrast to the institute's aggressive stance earlier this year to a negative mutual fund ad campaign by Canadian Deposit Insurance Corp.

Mr. Hockin argues it would not be appropriate to comment on the OSC probe before the regulator releases its report card, expected this summer.

He puts stock in the institute's continuing commitment to "detection and deterrence." For example, IFIC, in partnership with the OSC, is drafting new corporate governance rules that ensure each fund company has at least three independent directors. Ironically, the institute's own 22-member board has no independent directors. "It's never been suggested but it might be helpful," he said.

Officially, IFIC welcomes increased scrutiny. That said, Mr. Hockin notes mutual funds "are the most heavily regulated product in Canada, except the nuclear industry." When asked about future risks, costly paperwork and regulation from the country's 13 securities commissions tops his list of concerns.

The catch is IFIC has no teeth. The institute can only use "moral suasion" with member firms, he said, and pointed out that a mandatory code would run roughshod over the federal Competition Act.

"A trade association can't lock everybody up," he said. In fact, he views himself as more "village priest" than truant officer.

"People will comment and confess what they are worried about," he said. "That's crucial. That's the most sensitive part of my job."

© 2007 The Globe and Mail. All rights reserved.

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