Toronto-based Mackenzie Financial Corp. is the latest financial services firm to face a proposed class-action lawsuit in connection with the practice of offering mutual funds through discount brokerages that pay trailer commissions. The lawsuit seeks $175 million in damages on behalf of fund investors.
Law firm Siskinds LLP of Toronto filed a proposed class-action lawsuit against Mackenzie on Dec. 6 on behalf of discount brokerage clients who own any of the firm’s mutual funds, alleging that these funds charged excessive management fees to fund trailer commissions to discount brokerages that are paid, in part, for ongoing advice to clients that these organizations are not allowed to provide under securities rules.
The proposed representative plaintiff in the case is an investor who has held various Mackenzie funds in an account at TD Direct Investing since 2001. The lawsuit has not been certified as a class action, and none of the allegations have been proven.
This latest proposed lawsuit against a mutual fund firm follows earlier cases that have been brought, on similar grounds, against bank-owned fund firms, including TD Asset Management Inc. in April; Bank of Nova Scotia’s 1832 Asset Management LP in June; and Canadian Imperial Bank of Commerce in September.
Since those lawsuits were brought, securities regulators have proposed rule changes that would ban the practice of mutual funds paying trailers to discount brokerages for advice. The comment period on those proposals closes on Thurs. Dec. 13.
As with the other cases and the regulators’ proposals, this latest lawsuit focuses on the financial impact the mutual funds caused on investors by the payment of trailers to discount brokerages.
“The payment of trailing commissions to discount brokers in respect of the Mackenzie mutual funds is improper, unreasonable and unjustified,” the lawsuit alleges. “Consequently, the payment by [Mackenzie] of the unearned management fees on account of those trailing commissions, and their receipt by [Mackenzie], is improper, unreasonable and unjustified.”