TD bank in Toronto on Dec. 4. TD is the first bank to settle class-action lawsuits with Siskinds LLP and Kalloghlian Myers LLP.Christopher Katsarov/The Globe and Mail
An Ontario Court has approved an $8.5-million settlement deal between TD Asset Management Inc. and a group of investors who filed a class action alleging their funds lost value after the bank paid millions of dollars in fees to discount brokerages for advice they did not provide.
Toronto-based law firm Kalloghlian Myers LLP announced Monday that investors who had purchased a TD mutual fund from an investment adviser on or before Sept. 11, 2024, can now file for compensation after the Ontario Superior Court of Justice approved a class-action settlement with the asset management division of Toronto-Dominion Bank TD-T.
TD agreed to pay $70.25-million earlier this year to settle a separate class action filed by Siskinds LLP on behalf of do-it-yourself investors who had purchased TD mutual funds through online trading platforms. The latest case, however, covers a broader class of investors who purchased the investment funds outside of a discount brokerage, such as through a bank branch or a financial adviser. Investors allege the payment of advice fees lowered the value of TD’s mutual funds, shrinking their overall returns.
TD is the first bank to settle class-action lawsuits with Siskinds LLP and Kalloghlian Myers LLP. In 2018, Siskinds filed a total of seven lawsuits against the mutual fund arms of all six of the major banks, as well as Mackenzie Financial Corp., on behalf of investors who had purchased the funds through a discount brokerage. In 2020, Kalloghlian Myers filed seven lawsuits on behalf of all other mutual fund investors.
TD did not respond to a request for comment.
The controversy over charging advice fees to DIY investors came to light several years ago after regulators launched an investigation into the way some mutual funds were being sold by discount brokerages. Known as Series A funds, these funds are typically sold through a financial adviser and include trailing commissions to pay advisers for the advice they provide to clients. As a result, the funds charge a higher management expense ratio (MER) of between 1.5 per cent to 2.5 per cent. By comparison, funds that are tailored for do-it-yourself investors and strip out advice fees typically charge a MER of less than 1 per cent.
In 2020, the practice of paying advice fees to discount brokerages was banned by regulators after years of industry consultation. The ban had a two-year implementation period and came into effect in 2022.
In the past few years, a series of class-action lawsuits were filed by groups of do-it-yourself investors. In addition to the 14 cases filed against investment-fund managers, a separate proposed class-action case was filed in 2018 against several discount brokerages, alleging that the trading platforms had improperly collected about $5-billion in trailer fees.
However, in January, 2023, an Ontario judge declined to certify that case, stating that the trading platforms had not contravened any applicable securities law prior to the 2022 regulatory ban.
Monday’s TD settlement announcement followed a five-year legal battle that was filed in 2020 on behalf of plaintiff Manojkumar Aggarwal. According to legal documents, Mr. Aggarwal alleged that TD Asset Management breached its fiduciary and trust duties as a portfolio manager by “improperly paying trailing commissions” to discount brokers for services and advice that were never provided to investors.
As a result, he argued the advice payments “dissipated” the mutual fund assets, thereby diminishing the value for all TD Asset Management mutual fund unitholders.
“This settlement is not an admission of liability or wrongdoing by the defendant,” Kalloghlian Myers wrote in a statement. “It is an efficient compromise between the parties of their disputed positions.”
Investors who still own units of a TD mutual fund are not required to submit a claim for compensation. Instead, TD has been directed to deposit a portion of the settlement amount into each TD mutual fund.