Class actions sought against Big Six mutual-fund managers

The firms have allegedly charged excessive management fees for investors in two specific products

Class actions sought against Big Six mutual-fund managers

Class actions have been filed in the Supreme Court of British Columbia against RBC Global Asset Management (RBC GAM) and the Royal Trust Company as well as TD Asset Management (TDAM), with respect to two Canadian equity fund products that allegedly engaged in closet indexing.

In a statement released Tuesday, Investigation Counsel P.C. and Paul Bates, Barrister, announced the filing of two separate class actions: one regarding the RBC Canadian Equity Fund and the other regarding TD Canadian Equity Fund.

The proposed RBC fund class action “was filed on behalf of all persons, wherever they reside or are domiciled,” who have invested in units of the RBC fund — whether directly or indirectly through an RBC portfolio or fund-of-funds product — since June 1, 2005. The TD fund class action, meanwhile, was filed for those who have similarly made direct or indirect investments in the TD fund at any time from January 1, 2010 to present.

According to the plaintiffs, assets of the RBC fund and the TD fund, as well as assets of mutual funds that hold those funds, have been depleted through excessive fees that the fund managers, RBC GAM and TDAM, got from the fund trustees.

The fees that fund managers received were for conducting an active investing strategy. However, based on the accusations, the managers were actually engaging in a form of closet indexing, wherein an ostensibly active fund closely tracks or replicates, instead of exceeding, its benchmark index. In the case of both the RBC and TD funds, the benchmark being followed was the S&P/TSX Composite Index.

“It appears investors might not have received adequate disclosure about the true investment objectives and strategies of these Canadian equity funds,” said John Archibald of Investigation Counsel P.C.

“Canadian mutual fund investors pay amongst the highest fees in the world and they deserve full disclosure about the manager’s investment strategies and the associated costs. We believe excessive management fees should be paid back to affected investors,” he added.

“Mutual fund trustees and managers are accountable for legal compliance with a set of serious obligations that protect investors from harmful conduct, including excessive fees that deplete fund assets and diminish investor returns,” said Paul Bates, co-counsel for the plaintiffs.

This isn’t the first class-action fight waged over excessive fees. Last year, Siskinds LLP and Bates Barristers PC also filed class actions against CIBC and TDAM for unfairly charging “excessive, inflated, and/or unearned” management fees on mutual funds that were sold to investors through discount brokers. While the fees were said to have been for “services and advice” provided by dealers to investor clients, discount brokers are not allowed to provide investment advice.

“The Unearned Management Fees represent significant sums of money and are paid on a continuous basis,” the firms said in one class action document. “The Unearned Management Fees represent significant sums of money and are paid on a continuous basis.”


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