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A TD Canada Trust location in Toronto.

Deborah Baic/The Globe and Mail

Three subsidiaries of Toronto-Dominion Bank have agreed to repay at least $13.5-million to clients who were overcharged on fees over the past 14 years and will pay $650,000 to Ontario's market regulator in a settlement deal over the errors.

The Ontario Securities Commission said TD brought the payment problems to the regulator after discovering them during an internal review. The bank is compensating clients for all overcharged payments plus interest.

The errors involved at least 10,000 accounts held by current and former clients. None of the mistakes relate to fees charged on bank accounts.

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The settlement was approved by an OSC hearing panel Thursday on a no-contest basis, which means the TD subsidiaries did not have to make any admissions of wrongdoing.

OSC lawyer Michelle Vaillancourt said OSC staff found no evidence of "dishonest conduct" by TD, but said it breached proper standards for internal controls and supervision for allowing the fee errors to occur and remain undetected until recently.

OSC commissioner Mary Condon, who headed the panel, said the OSC was willing to approve the settlement on a no-contest basis in part because TD self-reported the errors, but said commissioners were concerned that TD knew of the problems for two years before reporting them.

TD lawyer David Hausman told reporters after the hearing that it took a long time to figure out the scope of the fee issues and develop a methodology to repay clients.

"These issues aren't simple, so it does take time to determine appropriate methodology and compensation," he said.

He told the hearing panel the TD subsidiaries have already returned $10.6-million to clients out of the $13.5-million in known over-payments. They have also already paid $600,000 to the OSC in sanctions and $50,000 to cover the OSC's investigation costs.

The $13.5-million in excess fees involved only three of four allegations in the case.

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TD said a fourth allegation came to light in June this year and is still being reviewed and it doesn't know yet how many clients are affected. They will be compensated under the settlement agreement when the calculations are completed.

The OSC said the first two fee errors were related to investment products that had adviser fees embedded into their cost, including some mutual funds managed by TD Asset Management Inc. that were held by clients with fee-based accounts. Clients with fee-based accounts pay fees based on a percentage of the total assets in the accounts.

The OSC said some managed mutual funds with embedded adviser fees that were held in fee-based accounts at TD Waterhouse Private Investment Counsel Inc. were incorrectly included when calculating account fees owed by the clients, resulting in some paying fees twice between 2000 and 2014. The total overpayment was $1.7-million.

Similarly, the OSC said some investment products with embedded adviser fees held in fee-based accounts at TD Waterhouse Canada Inc. were also incorrectly included in account fee calculations between 2007 and 2014. Those excess payments totalled $780,000.

The other two fee errors involved purchases of TD mutual funds by clients who were not informed they qualified for lower-fee premium funds because of their large investment amounts.

In both cases, the OSC said they indirectly paid excess fees by buying mutual funds with higher management-expense ratios.

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One of those premium fund errors accounted for $11-million in excess payments by 3,960 clients, representing the lion's share of the $13.5-million in excess fees being repaid in the case.

Mr. Hausman said the fourth error, also involving clients not being notified about cheaper mutual fund options, appears to be smaller than $11-million.

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