TD Asset Management Inc. (TDAM) has reached a settlement in a proposed class action that alleged mutual fund investors were harmed by its funds paying trailer fees to discount brokers.
The firm — which continues to deny the allegations — agreed to pay $70.25 million to resolve the lawsuit.
The proposed class action, launched in 2018, is one in a series of similar cases brought against various fund companies, alleging that they breached their duties to investors by paying trailers to discount brokers. According to the allegations, at least part of the payment was for ongoing advice that discounters are actually restricted from providing. As a result, plaintiffs say the mutual funds paid fees to discount brokers that were “excessive, inflated and/or unearned.”
“It is alleged by the plaintiffs that, since no advice is provided to investors who purchase mutual funds through discount brokers, these investors receive no value for the trailing commissions that reduce the value of their mutual fund investments,” noted Siskinds LLP, the class action firm that has brought a total of seven of these types cases.
In mid-2022, the Canadian Securities Administrators (CSA) formally banned the payment of trailers to discounters that can’t provide investors with advice.
According to the settlement, the firm agreed to settle to “avoid further expense, inconvenience and the distraction of burdensome and protracted litigation.”
The settlement acknowledges that the resolution does not represent any admission that the plaintiffs’ allegations are valid.
As for the plaintiffs, the deal indicated that they settled “to avoid the uncertainties of litigation,” and in the belief that the terms of the settlement are “fair, reasonable, and in the best interests” of investors.
The proposed settlement of the case is subject to approval by the Ontario Superior Court of Justice, which will hold a hearing on Dec. 9 to consider whether to sign off on the deal. At the same hearing, the court will also be asked to approve $17.9 million in fees for the plaintiffs’ lawyers in the case, along with $400,000 in expenses, and a proposed honorarium for the plaintiff in the case of $10,000 — costs that will come out of the settlement funds.