Trailer fee class action gets green light

Another lawsuit over mutual funds paying trailer commissions to discount brokers has been certified to proceed as a class action.

Ontario’s Superior Court of Justice certified a proposed investor class action against CIBC and CIBC Trust Corp., alleging that investors who bought CIBC mutual funds through a discount broker were harmed when those funds paid trailers to discount brokers, in part for advice the brokers didn’t provide.

“The plaintiff alleges that the trailing commissions are improper, unreasonable, and unjustified, and were paid by the defendants in breach of their duties to the class members who held those mutual funds,” the court said in its decision.

Similar actions against bank-owned fund firms have already been certified as class actions after contested hearings (TD Asset Management Inc. and BMO Investments Inc.), while others are still in the pre-certification stage. A case against Bank of Nova Scotia subsidiary 1832 Asset Management L.P. was certified late last year.

The allegations have not been proven, and CIBC did not oppose the certification order in this case, which “tracks in large measure the certification orders already issued in those other matters,” the court noted.

In certifying this case, the court largely adopted the conclusions of the previous rulings — including that there’s a viable cause of action, that the claim raises common issues, that there’s an identifiable class of investors, and that it makes sense to use a class action to adjudicate these common issues.

In certifying the case as a class action, the court also endorsed the proposed plaintiff in the case, the proposed litigation plan, and the proposed notices and opt-out form.

While there have now been several suits certified as class actions against fund firms, a proposed class action against a number of the discount brokers themselves for accepting trailer fees has been repeatedly rejected by the courts.

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.