Investors have launched lawsuits against three more Canadian banks, claiming the institutions charged millions of dollars in fees for advice they never provided.
Two Ontario-based law firms, Siskinds LLP and Bates Barristers P.C., have filed three proposed class actions against the asset-management divisions of Royal Bank of Canada, Bank of Montreal and National Bank of Canada. The suits claim that investors who bought the firm’s mutual funds through discount brokers were overcharged because certain funds paid a trailing commission that included a fee for advice.
“Since no advice is provided to investors who purchase mutual funds through discount brokers, these investors receive no value for the trailing commissions that are deducted from their mutual fund investments," said Siskinds and Bates Barristers in a statement.
“The actions seek compensation for the affected investors.”
The funds under review are Series A mutual funds, also known as adviser series or A-class funds. These funds are typically sold through a financial adviser and include commissions for the advice an adviser provides, but do-it-yourself investors who buy funds through a discount brokerage do not receive any advice or recommendations and therefore are paying for advice they do not receive.
The class actions were filed on behalf of investors who hold investments in the following mutual-fund firms: BMO Investments Inc., National Bank Investments Inc., Natcan Trust Company, RBC Global Asset Management Inc. and RBC Investor Services Trust (including PH&N funds). National Bank declined to comment Tuesday; the other banks did not immediately respond to requests for comment.
Despite discount brokerages not being allowed to provide advice to do-it-yourself investors, 83 per cent of mutual funds sold through discount brokerages in Canada include trailing commissions, according to a paper released in 2017 by the Canadian Securities Administrators, an umbrella group made up of provincial and territorial regulators. In addition, of the total $30-billion in assets held in mutual-fund products in discount brokerages, more than $25-billion remain in fund series that include an advice fee.
The recent filings brings the total number of class actions challenging the payment of trailing commissions to seven. The two law firms have previously filed proposed class actions on TD Asset Management Inc., Bank of Nova Scotia’s asset-management firm 1832 Asset Management LP, Canadian Imperial Bank of Commerce and Mackenzie Financial Corp.
None of the class actions have been certified and none of the allegations have been proven in court.
The controversial issue of discount brokers charging advice fees has been debated for years and in 2018 led regulators to propose an outright ban on discount brokers being allowed to sell Series-A funds on their platforms. At the same time, regulators were also proposing a ban on early withdrawal fees, known as deferred sales charges (DSCs), on mutual funds.
In September 2018, the two initiatives – which were both part of the same mutual-fund review – were open for a 90-day public-comment period by regulators. Shortly thereafter, Ontario Finance Minister Vic Fedeli released a statement opposing the recommendations by regulators, bringing a halt to both initiatives.
As a result, the majority of discount brokerages – of which there are approximately 15 in Canada – continue to sell Series A funds to investors. Several providers have added online alerts to notify investors of the additional fees, or to default to a lower-cost version of the mutual fund, if available – such as a D-series mutual fund.
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