Trailing commissions (also known as trailer fees) paid on investors’ mutual funds are intended to compensate mutual fund dealers for investment advice they provide to investors. Up until June 2022, mutual fund trailing commissions were also paid to discount brokers. However, discount brokers are prohibited from providing the advice that justifies the payment of trailing commissions. Discount brokers primarily operate online and include BMO InvestorLine, TD Direct Investing, RBC Direct Investing, CIBC Investor’s Edge, Scotia iTRADE and National Bank Direct Brokerage.
Unjustified Trailing Commissions on Mutual Funds
Siskinds LLP represent plaintiffs who have filed class actions against various mutual fund trustees and managers challenging the trailing commissions they have paid to discount brokers on mutual funds under their management. These trustees and managers are in the corporate family of major financial institutions, including many with their own discount broker subsidiary.
The lawsuits allege that, since no advice or services are provided to investors who purchase mutual funds through discount brokers, these investors receive no value for the trailing commissions paid by the defendant mutual fund trustees and managers on their behalf.
Over the years, regulators like the Canadian Securities Administrators raised concerns about the fairness and transparency of these embedded mutual fund fees, leading to an outright ban on such fees being paid in June 2022.
Tracing a Pattern of Misconduct
While such trailing commissions were paid to discount brokers for decades, the plaintiffs allege that the defendants failed to adequately disclose these payments to investors. After undertaking an investigation, Siskinds LLP filed a mutual fund fees class action on behalf of investors who held TD Mutual Fund units through a discount broker against TD Asset Management in April 2018. That was shortly followed by similar class actions against:
- BMO Investments Inc.
- National Bank Investments Inc. and Natcan Trust Company
- 1832 Asset Management L.P.
- CIBC Trust Corporation and Canadian Imperial Bank of Commerce
- Mackenzie Financial Corporation and Mackenzie Financial Capital Corporation
- RBC Global Asset Management Inc. and RBC Investor Services Trust
Holding Financial Institutions Accountable
The class actions seek damages for the mutual fund investors who held their units through discount brokers. Siskinds LLP has advanced these actions to recover the value lost by these investors, who had their holdings reduced by trailing commissions that are alleged to be improperly paid on their behalf. Over the decades, the trailing commissions paid out to discount brokers by the mutual fund industry amount to hundreds of millions of dollars. Class actions give power back to everyday investors by providing them with the opportunity to hold such institutions accountable and offering them access to justice.
Recent Mutual Fund Trailers Case Developments
Since filing the actions in 2018, some significant case developments have occurred.
TD Asset Management Inc. Class Action
On December 10, 2024, the Ontario Superior Court of Justice approved a C$70.25 million settlement with TD Asset Management Inc. to resolve the claims asserted on behalf of all persons, wherever they may reside or be domiciled, who held or hold, at any time on or prior to September 11, 2024, units of a TD mutual fund trust through a discount broker.
The distribution is currently ongoing. To be eligible to obtain compensation from the mutual fund trailing commissions settlement, Class Members must submit a Claim Form to the Administrator at www.TrailingCommissionsSettlement.ca by December 20, 2025.
Other Mutual Fund Fees Class Actions
Proposed class actions against other Defendant groups in Canada were certified on the following dates:
- BMO Investments Inc. – May 18, 2021. A copy of the certification order is available here.
- National Bank Investments Inc. and Natcan Trust Company – August 5, 2022. A copy of the certification order is available here.
- 1832 Asset Management L.P. – December 18, 2023. A copy of the certification order is available here.
- CIBC Trust Corporation and Canadian Imperial Bank of Commerce – January 25, 2025. A copy of the certification order is available here.
- Mackenzie Financial Corporation and Mackenzie Financial Capital Corporation – January 25, 2024. A copy of the certification order is available here.
- RBC Global Asset Management Inc. and RBC Investor Services Trust – July 25, 2024. A copy of the certification order is available here.
The deadlines for opting out of each of the above mutual fund fee class actions have expired.
Why Transparency with Mutual Fund Fees Matter
Investors should be able to trust that when they select certain investment vehicles, they are receiving the appropriate value for the fees charged. If financial institutions can profit by burying ongoing fees without proper disclosure, they become incentivized to continue doing so. Class actions hold these investment institutions accountable where there are inappropriate fee practices, creating greater transparency and fairness for investors.
Siskinds LLP continues to advance these class actions against financial institutions on behalf of Canadian investors.