Toronto-based Manulife Financial Corp. is the latest large financial services firm set to agree to a no-contest settlement with the Ontario Securities Commission (OSC) amid allegations that it overcharged certain clients.
The OSC announced on Tuesday that it will hold a hearing on Thursday to consider a no-contest settlement with a pair of Manulife dealer subsidiaries, Manulife Securities Inc. and Manulife Securities Investment Services Inc.
According to the OSC's allegations, the firms self-reported weaknesses in their internal controls in 2015 that "resulted in certain clients paying, directly or indirectly, excess fees that were not detected or corrected by the Manulife dealers in a timely manner."
The alleged overcharging involved clients in fee-based accounts that also paid embedded advisor fees, resulting in some clients paying excess fees between 2005 and 2016. In addition, some clients were not told that they qualified for a lower-cost of certain mutual funds and paid excess fees when they invested in the version of the funds with higher management expense ratios.
The OSC alleges that the overcharging was the result control and supervisory inadequacies that amount to a breach of securities rules. It also notes that there's no evidence of dishonest conduct by the firms.
The allegations indicate that the dealers are paying compensation to the clients who were overcharged and that the firms have taken corrective action to bolster compliance and prevent similar issues in the future.
The terms of the settlement will only be revealed if the OSC approves the agreement; no-contest settlements allow firms to resolve enforcement allegations without admitting to misconduct.
The OSC has entered into no-contest settlements with all of the Big Five banks along with a handful of other firms since introducing this procedure in 2014.
The latest such agreement took place on June 27, when an OSC hearing panel approved a no-contest settlement with a trio of Royal Bank of Canada (RBC) that sees the firms pay $21.8 million in compensation to clients and almost $1 million to regulators to settle allegations that they overcharged clients in certain mutual funds and fee-based accounts.
Photo copyright: andreypopov/123RF