by Tom Bradley

Then there were four.

Four banks have now disclosed to the Ontario Securities Commission that they were overcharging their wealth management clients.

BMO is the latest to self-report that they were double charging their clients (following in TD, Scotia and CIBC’s footsteps). In a no-contest settlement last week, the bank agreed to compensate 60,000 clients to the tune of $50 million.

The BMO case is interesting because the overbilling was not just isolated to BMO Nesbitt Burns, the brokerage arm. It was endemic, with clients also being overcharged in BMO Private Investment Counsel, BMO Investments (bank branches) and BMO InvestorLine (discount broker).

If you are a wealth management client of BMO, Scotia, TD or CIBC, and are receiving compensation, I would encourage you to ask questions of your advisor.

  • Why did this happen?
  • Why didn’t you pick up on it? You told me that shifting to a fee-based account would eliminate commissions and embedded fees.
  • Are you required to give back the over-compensation you received in previous years?
  • Have there been any fines, firings, suspensions or management changes at the bank as a result of the overbilling?
  • Is there anything else that I’m trusting you on that I should know more about?

In my view, these four institutions are getting off way too easy, as are the advisors and branch managers involved. Fee-based accounts, which caused most of the problems here, are not complicated, so the overcharging can’t be blamed on a systems error. I can assure you that in investment firms, inputs or factors that impact compensation are never overlooked (30 years of managing investment professionals allows me to say that). The banks' systems may be inadequate, but they are not the reason for this betrayal of client trust.

They also got off easy because all four announcements were reported one day and forgotten the next. And the fines paid to the OSC were token. The big amounts (i.e. $50 million for BMO and $73 million for CIBC) simply involved returning the clients’ own money to them (with 5% interest).

The new client reporting regime, known as CRM2, will start impacting investors in January. It can’t come soon enough.

Note: At Steadyhand, we have reported all fees (including management fees) in percentage and dollar terms since inception in 2007.