An Ontario Securities Commission (OSC) hearing panel approved a no-contest settlement on Thursday with Manulife Securities Inc. and Manulife Securities Investment Services Inc. that will see the two dealers pay more than $12 million in client compensation and payments to regulators to resolve allegations that they overcharged certain clients.
Specifically, the Burlington, Ont.-based Manulife Securities dealers will pay an estimated $11.7 million in compensation to clients that were allegedly overcharged by the firms — either because they were paying trailers within fee-based accounts, or because eligible clients weren’t advised of a lower-cost version of a particular fund. In addition to the client compensation, the firms agreed to make a voluntary $495,000 payment to the OSC and to pay $25,000 in costs.
“Regular vigilance is required to safeguard client accounts from errors and inattention,” says Jeff Kehoe, director of enforcement with the OSC, in a statement. “Clients have the right to expect robust compliance systems and controls to protect against excess fees.”
According to the settlement, the alleged overcharging in fee-based accounts took place between 2005 and 2016, affecting approximately 5,483 client accounts, which were collectively overcharged about $6 million. The mutual fund overcharging impacted approximately 3,937 accounts between 2007 and 2016, resulting in $5.7 million in overcharging.
The settlement notes that there was no evidence of intentional misconduct by the firms, the firms self-reported the issue to the OSC in 2015 and came up with a plan to compensate affected clients. The firms have also since taken remedial action to beef up their internal controls to prevent similar overcharging; and a review of their operations did not uncover any other instances of overcharging.
The no-contest settlement process allows the firms to resolve the allegations without admitting any wrongdoing. The OSC has entered no-contest agreements with all of the Big Five banks and a handful of other firms, to resolve similar cases.
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) firms that sees them 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.
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