Proposed class action against RBC GAM gets a green light

A proposed class action against RBC Global Asset Management Inc. (RBC GAM) alleging that investors overpaid for active management in an RBC fund that actually closely tracked its index has been certified by a British Columbia court.

The Supreme Court of B.C. ruled that a proposed class action lawsuit against RBC GAM for alleged closet indexing in the RBC Canadian Equity Fund can proceed.

According to the court, the plaintiffs in the case argue that they’ve suffered damages by paying for active management in a fund that is largely just tracking its index, and that the firm has been “unjustly enriched” as a result.

The court said that the plaintiffs argue that they paid 1.60% to 1.75% in management fees for a fund that only provided benchmark returns, versus MERs of between five and 25 basis points for index-tracing ETFs.

The decision noted that RBC GAM denied the allegations, arguing that it did not employ a closet indexing strategy and that the fund’s investors received the numerous benefits of active management, including stock selection, risk management and portfolio construction, among other things.

Without ruling on the merits of the case, the court found that the plaintiffs’ claims aren’t doomed to fail and that the various tests for proceeding as a class action — that there are common issues and that a class action is the preferable procedure — are met in this case.

As a result, the court certified the suit as a class action.

James Langton

James is a senior reporter for Advisor.ca and its sister publication, Investment Executive. He has been reporting on regulation, securities law, industry news and more since 1994.