Firms file proposed class action over alleged ‘closet index’ funds

RBC and TD could be facing class action lawsuits concerning allegations that they overcharged clients for mutual fund management fees.

On Tuesday, Investigation Counsel P.C. and Paul Bates Barrister announced they had filed two proposed class actions with B.C.’s Supreme Court against RBC Global Asset Management Inc. (RBC GAM) and subsidiary The Royal Trust Company, and TD Asset Management Inc. (TDAM).

The proposed lawsuits allege the investment managers charged “excessive” management fees for the RBC Canadian Equity Fund and TD Canadian Equity Fund, respectively.

A release from the law firms said RBC GAM and TDAM “received fees for conducting an investment strategy based on active management” when they were allegedly using a “closet indexing” strategy instead, designed to replicate—but not exceed—the performance of the S&P/TSX Composite Index.

“It appears investors might not have received adequate disclosure about the true investment objectives and strategies of these Canadian equity funds,” said John Archibald, a lawyer at Investigation Counsel P.C., in a release.

“Mutual fund trustees and managers are accountable for legal compliance with a set of serious obligations that protect investors from harmful conduct, including excessive fees that deplete fund assets and diminish investor returns,” said Paul Bates, co-counsel for the plaintiffs.

The proposed RBC GAM class action was filed on behalf of clients who have held (either directly or indirectly) units of the RBC Canadian Equity Fund at any time from June 1, 2005 to present. The proposed TDAM class action was filed on behalf of clients who have held units of the TD Canadian Equity Fund at any time from Jan. 1, 2010 to present.

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