An RBC sign is seen in Toronto’s financial district in this file photo.Mark Blinch/The Globe and Mail
The Royal Bank of Canada is under scrutiny after charging investors incorrect investment fees that, in some cases, went unnoticed for over a decade.
During a routine compliance review in January, 2015, RBC self-reported to regulators that they had found inadequacies in parts of their compliance systems which resulted in a number of RBC investors paying, directly or indirectly, excess fees they should not have been charged.
The Ontario Securities Commission (OSC) will hold a hearing on Tuesday to consider whether it is in the public interest to approve a no-contest settlement agreement between the OSC and RBC.
The amount of fees overcharged to investors has not been disclosed.
The excess of fees charged were found in client accounts at the investment dealer RBC Dominion Securities (RBC DS) and the bank's mutual-fund dealer Royal Mutual Funds Inc. (RBC MF), as well as asset manager RBC Phillips, Hager & North Investment Counsel Inc. (RBC PH&N).
Incorrect fees were also charged for certain fee-based clients at both RBC DS and RBC PH&N. (Fee-based clients are typically charged a single investment-management fee for all their assets held in the account. This fee is usually calculated on the amount of assets under management in the client's account.)
In some cases, clients who held certain investment products with embedded trailer fees were incorrectly charged between Jan 1, 2008, to Oct 31, 2016, (For RBC DS clients) and March 1, 2005, to Oct 31, 2016, (For RBC PH&N clients).
In addition, RBC clients who purchased, transferred from another mutual-fund dealer or already held mutual-funds managed by RBC were not advised that they qualified for a lower management expense ratio (MER) for certain mutual fund products. As a result, these investors indirectly paid excess fees when they invested in a higher MER series of the same mutual fund.
RBC has declined to comment until the settlement is approved by the OSC, says a spokesperson for the bank.
The OSC conducted its own investigation into the matter and has found no evidence of dishonest conduct by any of the RBC parties. The bank has reported its intention to pay appropriate compensation to all eligible (including former) clients who were affected, according to a statement of allegations posted on Wednesday.
As well, RBC is enhancing its procedures and controls, and supervisory and monitoring systems to prevent any recurrence of inaccurate fees being charged in the future.
RBC is not the first bank to be hit with compliance problems resulting in overcharging clients. Last year a number of subsidiaries of Bank of Montreal (BMO), Canadian Imperial Bank of Commerce (CIBC) and Scotia Capital Inc. were hit with similar compliance issues which resulted in no-contest settlements. In all four cases, the majority of the clients were fee-based investors. BMO paid close to $50-million in compensation to investors, while CIBC paid out $73-million and Scotia Capital paid approximately $20-million to investors.
If a panel of the commission approves the proposed no-contest settlement agreement with RBC next week, then the agreement will be made public and could release details such as the amount of investment fees that investors were overcharged.
Clare O’Hara