The New Brunswick Securities Commission is only in its second year as a stand-alone government agency, yet a pair of recent initiatives show it’s successfully carrying out its dual mandate to protect investors and develop the capital markets.

Earlier this year, the Canadian Securities Administrators commissioned a study that explores Canadian investors’ understanding and preferences (see page 30). The NBSC, while part of the national study, went one step further. It hired the same firm, Innovative Research Group Inc. , to conduct a survey on the attitudes, beliefs and actions of New Brunswick investors.

The recently released NBSC study, which provides data against which to measure the NBSC’s progress, found that although most New Brunswick residents understand the need to be informed investors, they aren’t doing their homework. For example, 86% of respondents agree that having a financial plan is important, yet 59% don’t have a plan and 57% lack a regular financial advisor.

The disconnect is also evident when it comes to researching investments. The study shows 87% feel research is essential, but only 42% actually do any. In fact, 22% of survey participants admit they invest immediately after hearing about an investment opportunity.

Likewise, while 86% of New Brunswickers surveyed believe it is important to report all suspicious investment opportunities, only 15% have ever reported their own experiences with fraudulent attempts to get them to invest.

“Our challenge lies in changing investor behaviour so that New Brunswickers are able to make smart investment decisions,” says Rick Hancox, executive director of the NBSC in Saint John.

There is a related challenge: making New Brunswickers aware of the commission itself. “We were not surprised but disappointed that only 25% are aware that there is now a New Brunswick securities agency,” says NBSC chairman and CEO Donne Smith. “It confirms our expectation — and will require us to redouble our effort.”

The NBSC will probably conduct a follow-up study in two years.

A lot can happen in a few years, as the NBSC itself has proven. Since 2004, when the provincial government created the NBSC from a branch of the Department of Justice and enacted updated legislation, the commission has been working flat out to address its mandate.

“We’ve come a long way,” says Smith. The first 24 months were spent creating an efficient and effective organization, adding specialized securities law and accounting expertise and building a strong regulatory unit. “You have to be on top of the changing financial markets,” he adds. “That requires specialized expertise and quickness of mind.”

The NBSC has also built strength in four key operational areas: litigation, policy, corporate governance and public accountability.

To understand its role in developing New Brunswick’s capital markets, the NBSC has launched an initiative that Smith says is unique in Canada. Last year, it retained Michael Arbow, a capital markets specialist; this year, Arbow has held round-table discussions in nine communities across the province, talking with more than 200 people involved in capital markets, including government, entrepreneurs and the business media.

The talk is now being transformed into a capital markets strategy for the province. “Our challenge was to determine what was meant by ‘fostering New Brunswick’s capital markets’,” says Smith. “We took that mandate to heart.”

In the meantime, work continues on a broader front. On Jan. 28-30, 2007, the NBSC will host the Fullsail Summit in Moncton, which will bring together 200 “movers and shakers to identify solutions to raising capital,” says Smith. “We hope it will result in individuals and organizations coming forward as champions.”

After the event, the wind will not go out of the initiative. There will be a repeat performance in January 2008 to report on progress. “We are going to hold people accountable,” says Smith. “A lot of people are watching us.”

One reason for the scrutiny is that New Brunswick is struggling to compete. The most recognized equity market for New Brunswick firms is the Toronto Stock Exchange and, to a lesser extent, the TSX Venture Exchange. In 2005-06, New Brunswick had six firms listed on the two exchanges, ranking ninth among the provinces for the number of listings. Only Prince Edward Island, with no listings, ranked lower.

“New Brunswick is a small jurisdiction with a business culture that has lost its knowledge about how to raise equity capital,” says Smith. “We are criticized for being an Atlantic Canadian jurisdiction that lives on grants and government handouts. But many of the entrepreneurs and development agencies are very interested in finding ways to raise capital.”

@page_break@In the round tables Arbow held, participants raised the issues of: being entrepreneurial and understanding the business culture; the need for a system to bring investment money, company management expertise and entrepreneurs’ ideas together; and a cultural deficiency in most stakeholder groups surrounding the awareness, use and benefits of equity capital.

Among the possible solutions are development of a securities instrument similar to Nova Scotia’s Community Economic Development Investment Fund, which can be placed in an RRSP, and the creation of incentives for major firms to seek equity positions in junior growth companies as a way of stimulating economic diversity and innovation. A way should also be found to bring the investment community on board, such as providing an equity investment tool on which advisors can earn a fee, thus providing an incentive for advisors to find funds for entrepreneurs.

“We found a surprising hunger for knowledge about capital markets,” says Smith. “There is a knowledge gap and an investment gap..”

The NBSC is well positioned to make the proposed solutions a reality. Its structure as a self-funded model gives it a great deal of flexibility and puts it in the same league as much larger provinces. In practical terms, this means the NBSC has access to the revenue it generates. Of the $9 million in revenue it brought in its fiscal year ended March 31, 2006, the commission used slightly more than $3 million for its operating expenses and returned the remaining funds to the government. As needs arise, however, the NBSC has a pot of funds on which to draw, which is critical to a young upstart that’s determined to protect investors and develop the markets. IE