Investment dealer Canaccord Genuity Corp. is the latest firm to settle regulatory allegations involving client overcharging.
On Dec. 15, 2021, an Investment Industry Regulatory Organization of Canada (IIROC) hearing panel accepted a settlement between Canaccord and the self-regulatory organization’s staff, which saw the firm admit it violated IIROC rules by failing to prevent certain clients in fee-based accounts from being overcharged.
Under the settlement, the firm agreed to a $157,500 fine and $50,000 in costs. Canaccord is also repaying about $1.4 million to around 6,000 affected clients.
According to the settlement, certain clients were overcharged when they paid trailer fees or other embedded charges on assets held in fee-based accounts, such as ETFs and structured products.
The settlement noted that advisors at the firm raised the issue of fee-based clients potentially being overcharged back in 2013, but that the firm didn’t adopt specific policies to prevent this sort of overcharging in response to those concerns, relying instead on its existing procedures.
When IIROC carried out an industry-wide review of overcharging in fee-based accounts in 2017, “Canaccord determined that their existing policies and procedures and compliance review adequately dealt with the issue,” the settlement stated.
However, the SRO’s staff raised concerns again in a 2019 compliance exam.
That same year, the firm ramped up efforts to prevent overcharging in fee-based accounts and voluntarily reimbursed clients that had been overcharged, the settlement noted.
The issue of firms overcharging clients by collecting embedded compensation on top of asset-based account fees first came to light in 2014 when regulators reached the first in a series of settlements with a number of bank-owned dealers and other large firms involving the same sort of conduct.