Toronto-based Bank of Nova Scotia’s 1832 Asset Management LP, which manages the Scotia and Dynamic mutual funds, is facing a proposed $200-million class-action lawsuit in connection with trailer fees its mutual funds have paid to discount brokerages.
This is the latest bank-owned mutual fund manager to face such action. In April, a proposed class-action was filed against TD Asset Management Inc., also for $200 million, over the trailing commissions its mutual funds paid to discount brokerages.
Neither case has been certified as a class action and the allegations have not been proven.
The lawsuits are seeking damages on behalf of discount brokerage clients who held mutual funds, which paid trailers to their brokers. Historically, trailers have been paid, at least in part, to compensate dealers for advice; yet, discount brokerages are not permitted to provide advice. So, the proposed class actions are claiming damages on behalf of investors in funds that paid trailers to discount brokerages for advice that they never received.
Last week, the Canadian Securities Administrators (CSA) announced it’s planning to ban the practice of mutual fund firms paying trailers to discount brokerages as part of various policy actions.
In a notice announcing its proposed action, the CSA said that it does not see any, “justifiable rationale for the practice of paying discount brokerage dealers an ongoing trailing commission for the sale of a mutual fund.”
As a result, the CSA stated it’s proposing to “prohibit investment fund managers from paying, and dealers from soliciting and accepting, trailing commissions (whether for advice or any other service), where the dealer does not make a suitability determination in connection with the distribution of prospectus qualified mutual fund securities.”