TD nears deal on mutual fee violations

Stock market regulator alleges lack of controls resulted in undue charges

The Ontario Securities Commission (OSC) has reached a tentative settlement deal with the investment and mutual fund arms of Toronto-Dominion Bank in connection to allegations that some clients paid excess mutual fund fees for 14 years.

The OSC will convene a hearing on Nov. 13 to consider whether to approve the agreement involving “selfreported” TD violations.

The proposed deal involves TD Waterhouse Private Investment Counsel Inc., investment adviser TD Waterhouse Canada Inc. and TD Investment Services Inc., which sells mutual funds.

The regulator alleges that failures in the firms’ internal controls and supervisory systems led to fee calculation errors in some accounts.

In other instances, clients were allegedly not advised that they qualified for mutual funds with lower management expense ratios, or MERs.

“The failures in the TD Entities’ systems of controls and supervision . . . were contrary to the public interest,” the OSC said in its statement of allegations.

From May to September 2014, the TD Entities “self-reported” to OSC staff four separate matters that resulted in clients paying excess fees, either directly or indirectly, according to the OSC documents.

TD also indicated that it intended to pay compensation to clients and put additional controls and supervision in place to prevent it from happening again.

The bank said in a statement emailed to the Star that client notification and compensation is already underway.

“TD Wealth has resources in place to be available to answer client questions and is reaching out to impacted clients to ensure they understand that the issue has been corrected and that they will be compensated for the additional fees they have paid,” the bank said.

Two of the alleged matters relate to mutual funds with embedded adviser fees managed by TD Asset Management, the OSC said. These funds, when held in fee-based accounts, were incorrectly included in account fee calculations, the OSC said. As a result, some clients paid excess fees from November 2000 to February 2014.

The remaining violations centre on a failure of TD Waterhouse to advise some clients that they qualified for funds with lower MERs.

The TD companies “failed to establish, maintain and apply procedures to establish controls and supervision,” the OSC alleges.