Class action blasts sale of trailer-fee funds on discount platforms

Actions have been filed arguing that investors received no value for the amounts they were charged

Class action blasts sale of trailer-fee funds on discount platforms

Less than a week after the Canadian Securities Administrators (CSA) published a proposal to ban certain forms of embedded commissions in mutual funds, a newly filed class action is arguing that such fees have unfairly cost investors on online platforms.

The proposed action filed was filed by Siskinds LLP and Bates Barristers PC against the Canadian Imperial Bank of Commerce (CIBC) and CIBC Trust Corporation at the Ontario Superior Court of Justice. It charged that investors who bought CIBC mutual funds through discount brokers have paid “excessive, inflated and/or unearned” management fees.

At the core of the action is the fact that the fees included trailing commissions; citing Fund Facts Documents filed by CIBC and CIBC Trust Corporation since 2011, the class action said CIBC Mutual Funds pay such fees to dealers “for the ‘services and advice’ provided by those dealers to their investor clients.” But under rules laid out by the Investment Industry Regulatory Organization of Canada (IIROC), discount brokers cannot provide investment advice to investors.

Learn the short history of the Canadian Imperial Bank of Commerce and their achievements here.

 “The Unearned Management Fees represent significant sums of money and are paid on a continuous basis,” charged the class action document. “The Class Members have suffered, and continue to suffer, significant loss and damage as a result of the Defendants’ acts and omissions pleaded herein.”

This isn’t the first class action filed by the firms on this issue. In a proposed class action against TD Asset Management filed April, they said investors using discount brokers paid excessive fees for TD mutual funds that charged trailing commissions. In June, they sounded the same notes in a proposed action against 1832 Asset Management L.P. in relation to commissions paid to discount brokers on Scotia and Dynamic mutual funds.

Read more: What are TD mutual funds?

The growing reaction against such fees could also have come as a result of improved disclosures in investment account statements. As industry experts have predicted even before CRM2, eagle-eyed online investors who scrutinize their statements are realizing when discount brokers charge the same trailing fees on investments as full-service advisors.