A third bank-owned fund company, RBC Global Asset Management Inc., is proposing to settle an investor class action over the payment of trailer fees to discount brokers for $45 million.
Already, a couple of bank fund companies (TD Asset Management Inc. and CIBC and CIBC Trust Corp.) have settled similar class actions. Now, a case against RBC GAM and RBC Investor Services Trust on behalf of investors that held RBC or PH&N funds at a discount broker between the end of 2003 and July 25, 2024 has tentatively been settled, pending court approval.
The case is one of series of proposed class actions that sought damages on behalf of fund investors based on the fact that mutual funds paid trailer fees to discount brokers, in part, for services that the brokers were prevented from providing based on the limitations of their registration — namely, that they couldn’t provide their clients with ongoing investment advice — and that fees paid for services the brokers didn’t provide reduced the value of investors’ holdings.
In 2022, the Canadian Securities Administrators (CSA) banned the practice of mutual funds paying trailers to discount brokers.
The proposed settlement on behalf of investors in the RBC and PH&N funds faces a hearing on Sept. 8 to secure approval from the Ontario Superior Court of Justice.
At that hearing, in addition to reviewing the terms of the settlement, the court will also consider proposed legal fees of up to $12.6 million, plus disbursements (up to $200,000) and tax on those costs. In addition to the legal costs, the settlement total will also be reduced by the costs of funding the litigation.
Affected investors now have until Aug. 18 to opt out of the proposed deal.
Previously, TDAM settled the claims against it for $70.25 million, and CIBC settled for $26 million.
The banks haven’t admitted any wrongdoing in those settlements.
Unresolved cases remain outstanding against the fund managers of the other Big Six banks, and against Mackenzie Financial Corp.