An Ontario court has green-lit the first in a series of class-action lawsuits against the investment arms of Canadian banks in a dispute over millions of dollars in commissions paid by do-it-yourself investors for advice they did not receive.
Ontario Superior Court Justice Edward Belobaba has certified a class-action lawsuit against TD Asset Management Inc. regarding trailing commissions paid to discount brokers on some TD mutual funds.
Trailing commissions are typically used to compensate an individual or firm for advice and services provided to an investor. But do-it-yourself investors using discount brokerages usually do not work with advisers to purchase investment products, and do not receive advice.
The certification ruling is key because the class action is the first of seven filed by Siskinds LLP and Bates Barristers P.C. against the mutual fund arms of all six of the major banks, as well as Mackenzie Financial Corp.
Paul Bates, co-counsel for the plaintiff, said Thursday he was not surprised by the decision, and anticipates the remaining six cases to “quickly be determined on the basis of the TD decision” and be certified by the courts.
The proposed action claimed damages of $200-million and other relief on behalf of TD investors who hold or held such TD funds at a discount brokerage. That amount may be updated in later filings, Mr. Bates said.
The TD class action was filed in April, 2018, on behalf of plaintiff Gary Stenzler, a retired dentist who had purchased TD mutual funds as a do-it-yourself investor using an online brokerage account but was charged trailing fees for advice he never received.
TD declined to comment on the case, stating that “as a policy we do not comment on matters that are before the courts.”
The controversy over advice fees being charged to DIY investors came to light several years ago after regulators were called in to take a closer look at Series A mutual funds that were being sold through discount brokerages.
Series A are typically sold through a financial adviser and include trailing commissions for the advice an adviser provides. Series A funds account for 68 per cent of the total amount of mutual funds assets in Canada, according to the Investment Funds Institute of Canada, and can charge a management expense ratio (MER) between 1.5 per cent to 2.5 per cent. By comparison, Series D funds that are tailored for do-it-yourself investors and strip out advice fees can have an MER of less than 1 per cent.
Regulators are currently in the process of banning the practice of discount brokerages charging such fees after the Canadian Securities Administrators, an umbrella group for all provincial securities commissions, announced there was “no justifiable rationale” for paying discount brokers any continuing commissions for the sale of a mutual fund.
But the investors who have been paying millions of dollars in fees for years are now seeking reimbursement for the charges that Mr. Stenzler says “depleted” the assets of his TD funds, which in turn “reduced the value” of his investments and thus the overall return on this investment.
Mr. Stenzler isn’t pointing the finger at the discount brokerage as the one responsible for overcharging him in investment fees, but rather the investment-fund manager that created the mutual funds and paid the fees to the discount brokerage. (A separate group of Canadian investors have filed a proposed class action lawsuit against the discount brokerage companies, which has not yet been certified.)
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