A hearing panel of the Investment Industry Regulatory Organization of Canada (IIROC) has accepted a settlement agreement between IIROC and Canaccord Genuity Corp., after the firm admitted it overcharged more than 6,000 clients more than $1.4-million between January 2010 and November 2019.

As part of an IIROC business conduct examination, Canaccord described certain circumstances in which it permitted trailer or embedded fees to be paid to the company and its registered representatives for some securities held in fee-based accounts where clients were already being charged a fixed fee based on a percentage of their holdings.

The amount of embedded fees incurred in fee-based accounts between January 2010 and November 2019 was $1,406,261.50. As of the settlement date, Canaccord has reportedly repaid more than $1.2-million to approximately 5,200 clients.

The settlement agreement states that the charging issue was first brought to the firm’s attention in 2013 when investment advisors began to identify certain products with embedded fees that were included in the fee calculation in fee-based accounts and raised concerns about the practice with Canaccord. When IIROC sent a letter to Canaccord and other dealer members in April 2017, asking members to investigate fee-based accounts to determine if there were any charging issues, Canaccord determined that their existing policies and procedures adequately dealt with the issue, and they did not report any significant findings to the regulator. 

Today the settlement agreement says each trailer-paying security is now flagged and a control is in place to systematically prevent the client from being charged a management fee when the security is held in a fee-based account. “On a weekly basis, the respondent manually reviews all exchange-traded trailer fees received to ensure that no account fees would be charged to clients in connection with these trailer fee paying securities,” IIROC states in is settlement agreement with Canaccord. “The respondent’s failure was inadvertent. There is no suggestion that the respondent deliberately overcharged any client.” 

In addition to costs in the amount of $50,000, Canaccord also agreed to pay a find of $157,500.