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An RBC sign is seen in Toronto’s financial district in this file photo.Mark Blinch/The Globe and Mail

Royal Bank of Canada will repay $21.8-million to clients who were incorrectly charged investment fees for certain mutual-fund products and fee-based accounts.

During a routine compliance review in 2015, RBC self-reported to the Ontario Securities Commission that it had found inadequacies in parts of its compliance systems that resulted in more than 50,000 RBC investors paying, directly or indirectly, excess fees they should not have been charged.

The excess 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., as well as asset manager RBC Phillips, Hager & North Investment Counsel Inc. (RBC PH&N).

Under the terms of the settlement approved on Tuesday, all RBC parties will pay $21.8-million to reimburse clients. The parties will also pay an additional voluntary payment of $925,000 to the commission to advance the OSC's mandate of protecting investors and another $50,000 to reimburse the OSC for investigation costs.

This is the eighth no-contest settlement the OSC has reached with financial institutions relating to inaccurate investment fees being charged to investors since 2014.

Last year, a number of subsidiaries of Bank of Montreal, Canadian Imperial Bank of Commerce and Scotia Capital Inc. were hit with similar compliance issues that 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.

The total amount of all eight settlements – including RBC's – has resulted in $342-million paid back to investors.

At RBC, incorrect fees were 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.

Both RBC and the OSC conducted internal investigations into the matter. RBC hired an independent third party to assist the bank in identifying, calculating and validating the amounts to be paid back to clients.

"We sincerely regret these errors. When we became aware of them, we quickly notified the OSC and took immediate steps to ensure clients would be reimbursed. We are currently reaching out to affected clients to ensure they are appropriately compensated and we have also improved our processes to prevent this from happening again," a spokesperson for RBC said.

The OSC found no evidence of dishonest conduct by any of the RBC parties.

"This settlement sends a strong message and it achieves key regulatory goals – specifically, it sends a very clear message that we expect registrants to have robust and effective compliance systems in place so that there is reasonable assurance that registrants are dealing fairly with clients in regards to fees," says Yvonne Chisholm, senior counsel for the OSC.

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Tickers mentioned in this story

Study and track financial data on any traded entity: click to open the full quote page. Data updated as of 18/03/24 4:20pm EDT.

SymbolName% changeLast
RY-T
Royal Bank of Canada
-0.22%134.34
RY-N
Royal Bank of Canada
-0.07%99.27

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