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.

Investors who don’t care about and don’t understand investing delegate the activity to advisors, with little understanding of the fees they pay or their advisor’s qualifications, according to research from FAIR Canada.

The Toronto-based investor advocacy group published the results of focus groups carried out by The Strategic Counsel, a market research firm. The research sought to understand the attitudes of ordinary retail investors.

Participating investors weren’t particularly interested in the chore of managing their finances.

“The task of investing is not an activity that engenders a lot interest and engagement despite its importance to their household finances. [Participants] prefer to allocate more of their personal time to other areas — working, children, recreational activities, among others,” the report said.

Additionally, the investors encountered high barriers to learning about investing for themselves.

“They perceive the terminology and language of the industry as hard to understand,” the report noted, saying investors also found investment documents difficult to review.

Given these factors, most participating investors were content to outsource the activity to advisors or frontline reps at their banks, the report said.

“Due to their low overall interest in investing, few expressed a desire to spend additional time and effort acquiring knowledge in this area. Many believed that it was preferable to rely on the knowledge and advice of industry professionals rather than learning about investing on their own.”

As a result, investors placed a great deal of trust in both their advisor and their firm. This trust was grounded in several factors, including longstanding relationships with advisors, positive historical returns and the firm’s reputation.

“Much of the trust was not necessarily earned by the advisors but rather given to them by their clients,” the report found. “Many investors seemed to have ‘blind trust’ in their advisor.”

For example, while participants said they viewed their advisors’ qualifications as important, most didn’t know or understand those qualifications.

And “while they accepted their advisor should get paid, participants did not understand how their advisor was compensated” or how those fees impacted their returns over the long run, the report noted.

Investors defined fairness in the context of investing as recommending investments in the interests of the client; providing clarity around advisor compensation; communicating using terminology that’s easy to understand; and willingness to help and guide small investors.

“In a time of rising interest rates and affordability crisis, Canadians are often placing their future in the hands of investment advisors without asking the right questions,” said Jean-Paul Bureaud, executive director of FAIR Canada, in a release. “Investors told us they not only struggle to understand the products they were recommended, but many also didn’t understand the type of advisor they were dealing with.”

Bureaud suggested the findings represented an investor protection concern.

“Most investors in the advisor channels found investing difficult to comprehend and learn. So, it is no surprise to observe a tendency to blindly trust whatever their advisors told them. This exposes them to potential risks and makes them more vulnerable to bad advice,” he said. “[W]e need to do a better job of educating and preparing Canadians to invest.”

The focus groups were conducted online with 49 participants who represented a mix of DIY and advised investors with at least $10,000 invested.

Last week, a study from the CFA Institute found that Gen Z investors tended to take advice from finfluencers because cost was a barrier to accessing a professional financial advisor, but that only 20% of finfluencer content containing investment recommendations had disclosures of any kind.

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.

Canadian Western Bank has a new regional wealth hub and banking centre in Toronto to help it target business-owner clients, offering an alternative to the Big Six banks.

Stephen Murphy, group head of commercial, personal and wealth at the Edmonton-based bank, said the downtown location is convenient for business owners even if they’re located in other areas. “You’re leveraging that that’s where all the other banks are,” he said.

In September, CWB completed the move of 14 Toronto-based CWB Wealth advisors into its office tower on Adelaide Street, consolidating its office space in the city. In November, CWB opened a branch at the location, offering clients commercial and personal banking services.

Murphy said he’d underestimated the benefit of “having a tower with your logo on it” in the financial district. “It really kind of amplifies our visibility [with clients] as a national player.”

The moves are part of the bank’s broader initiative to build out its business in Ontario, which began in 2020 when CWB opened a full-service branch in Mississauga, just outside Toronto. In 2022, it opened another branch in Markham, north of Toronto.

“[Our] priorities were around opening where the business owners are,” Murphy said.

Later this year, the bank says it will open a branch in Kitchener, Ont. For now, it has no further plans to open branches in Toronto.

“From a [Greater Toronto Area] perspective, in our model, we don’t need a branch at every corner — the triangle of Mississauga, Markham, downtown Toronto is adequate for us.”

CWB focuses on providing commercial banking, personal banking and wealth advisory services to small and medium-sized business owners.

Murphy said CWB can be nimbler than some of its competitors, such as the big banks, when it comes to holistic solutions for clients. “They’re just so big they need to be organized a certain way, and when you’re organized that way, it’s hard to deliver a really strong integrated solution,” he said.

In 2021, CWB merged its legacy private wealth businesses under the CWB Wealth brand, following CWB’s acquisition of T.E. Wealth and Leon Frazer in 2020.

“We were a meaningfully sized wealth business, but we weren’t big enough and we didn’t have enough capability, particularly in Ontario, so that was a really necessary platform-building acquisition for us,” Murphy said.

Today, CWB is home to 49 advisors, including four advisors in its T.E. Wealth Indigenous Services business.

As of Oct. 31, 2023, the bank had $7.9 billion in assets under management and administration on its CWB Wealth platform, and $2.1 billion in assets under advisory in its T.E. Wealth Indigenous Services business, for a total of $10 billion in assets under supervision. That compared to $9.6 billion in assets under supervision on Oct. 31, 2022.

Murphy said the bank is focused more on growing its wealth platform organically than by acquisition, but it would be open to a deal if it added capability. In its primary markets of Alberta and Ontario, “I’d say we’re fine,” Murphy said, but in Vancouver, “we don’t have the scale that I would like to have in terms of advisors.”

A key project for the bank this year is the continued rollout of a “revised” private banking model across the country, which leverages the wealth platform’s existing advisory capabilities while hiring where necessary, to move it toward a more segmented approach of serving clients.

“There’s not necessarily innovation in terms of the product or the offering,” Murphy said. “It’s really just about ensuring we’ve got the right client experience with the right talent, [aligned] in the right way [so] that all of the people involved in that relationship work together.”

Starting the revised private banking model in Ontario from scratch has meant the bank is “further along in the execution because we’ve hired into the model,” Murphy said.

Rudy Mezzetta

Rudy is a senior reporter for Advisor.ca and its sister publication, Investment Executive. He has been reporting on tax, estate planning, industry news and more since 2005. Reach him at rudy@newcom.ca.

Investment dealer representatives may finally get the option of structuring their businesses using personal corporations, as the Canadian Investment Regulatory Organization (CIRO) seeks to resolve a long-standing difference between the investment dealer and mutual fund dealer worlds.

The self-regulatory organization (SRO) published a consultation paper on Thursday that proposes three possible approaches to levelling the playing field between full-service advisors and fund dealer reps when it comes to the tax treatment of their compensation.

Historically, fund reps have been able to flow a portion of their commissions through personal corporations, taking advantage of the preferential tax rates that apply to businesses, among other potential advantages to incorporation structures.

Regulators prevented investment dealer reps from using the same structures for their businesses, citing legal and regulatory concerns that could arise if personal corporations were allowed to stand between a rep and their dealer, possibly disrupting the chain of vicarious liability that dealers have for the actions of their reps.

The disparity arose decades ago — before the creation of the Mutual Fund Dealers Association of Canada as an SRO for the fund dealer sector — when fund dealers were directly regulated by the provincial securities commissions, which allowed personal corporations. The investment dealers were already subject to SRO oversight, which took a harder line.

Now, CIRO is looking to put an end to these inconsistent regulatory approaches.

In its paper, the SRO sets out three possible options for resolving the issue and declares its preferred approach: allowing all reps to use personal corporations that are approved by CIRO.

According to the paper, the preliminary view of CIRO staff is that the incorporated rep model is their preferred approach for several reasons. Under the proposed model, the SRO would have oversight of reps’ corporations, the policy could be implemented relatively easily by changing the SRO’s rules, and this approach would be less burdensome than the alternative of requiring reps to use corporations that are registered by the provincial securities regulators.

Requiring reps to use corporations that are registered with the provincial regulators is the other main option examined in the paper.

The paper also contemplates taking an interim approach of allowing reps to direct compensation through an unregistered corporation, which is only allowed to engage in activities that don’t trigger registration requirements, with a view to ultimately moving to either the incorporated rep model or registered corporation model.

The paper discussing these policy options is now out for comment until March 25.

Any rule changes that are proposed to implement the policy approach that CIRO ultimately decides to adopt would have to be approved by the Canadian Securities Administrators, following its typical review and comment process.

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.

Jeff Kehoe, director of enforcement with the Ontario Securities Commission (OSC), is leaving his role at the end of February.

Kehoe has been leading the enforcement division since late 2016, when he joined the OSC after industry and capital markets experience that included enforcement roles with the Investment Industry Regulatory Organization of Canada.

OSC spokesperson JP Vecsi said in an emailed statement that Kehoe “has demonstrated a remarkable commitment to protecting Ontario’s investors and pursuing bad actors.”

“We wish Jeff the best for the next stage in his career and thank him for his service to the commission,” Vecsi added.

While the search for a successor takes place, OSC executive director Leslie Byberg will oversee enforcement.

Milestones during Kehoe’s tenure include developing the commission’s whistleblower program, which was created in 2016, and the greater use of no-contest settlement agreements that initially allowed for several major cases to be settled.

There also have been efforts to bring enforcement cases against unregistered crypto firms, a novel area that regulators have been grappling with.

Other notable moves

• Anik Lanthier has joined Richter Family Office as chief investment officer, a newly created role. Richter Family Office, which offers business advisory and family office services, was founded in Montreal in 2000 and also has a Toronto office. (Parent company Richter, where Lanthier was named a partner, was founded in 1926.) Lanthier brings 25 years of industry experience, a release said, including nearly 15 years with pension investment manager PSP Investments. Richter also said it’s expanding in Toronto with the appointment of Joe Triolo, coming from EY, as a partner. The firm is also appointing vice-presidents Nancy Tavoukdjian and Nicolas Ravary-Cossette to partner roles in Montreal.
• The Campbell Germain Advisory Group has joined National Bank Financial’s Edmonton office, coming from Richardson Wealth. The team members are: wealth advisor and portfolio managers Rob Campbell and Jon Germain, plus wealth associate Gina Freeland and associates Sofia Oleksyn and Taylor Thursby. Campbell began working in the industry in 1999 while Germain started in 2010, with both getting their start at CIBC Wood Gundy.

-With files from James Langton

If you know of other people moves in the financial industry and/or would like us to consider your announcement, email Katie Keir at katie@newcom.ca.

Correction: Nancy Tavoukdjian and Nicolas Ravary-Cossette were appointed to partner roles at Richter in Montreal, not Toronto, as an earlier version of this article stated.

Katie Keir

News

Katie is special projects editor for Advisor.ca and has worked with the team since 2010. In 2012, she was named Best New Journalist by the Canadian Business Media Awards. Reach her at katie@newcom.ca.

Weak fourth quarter results for the big U.S. banks point to earnings challenges in the year ahead, says Fitch Ratings.

In a new report, the rating agency said that, among the big U.S. banks that have reported their results, pre-provision net revenue was down 37% in the fourth quarter, dragging full year growth down to just 6%.

“Large U.S. banks reported weak fourth quarter results driven by material one-time charges, capping a challenging year of fee income headwinds, rising funding costs, negative operating leverage and normalizing credit quality,” Fitch said.

On average, net interest income was down by 8% year over year, it reported. But these results varied widely based on business model differences.

While commercially focused regional banks faced double-digit drops in their net interest income, banks with big credit card and retail portfolios, such as JPMorgan Chase and Citigroup, held up better, it said.

Looking ahead, banks are anticipating continued declines in net interest income, “hampered by persistently slow loan growth, continued deposit repricing and expected rate cuts in the latter part of the year,” Fitch said.

Average net interest margins declined by six basis points in the fourth quarter, following a 7 basis point decline in the previous quarter, and a 16 basis point drop in the second quarter, it noted.

“Net interest margins appeared to have either reached or approached a floor across the group,” it said.

On the upside, the banks are expecting fee income to improve as the capital markets are responding positively to the belief that the rate cycle will be turning in the year ahead.

However, in the fourth quarter, non-interest income was flat, on average.

“The large trading banks again reported muted investment banking revenues during the quarter, rounding off an exceptionally poor year for these activities,” Fitch said.

“However, debt underwriting was a moderate bright spot, as revenues strengthened by approximately one-third on aggregate, while the picture for equity underwriting and M&A advisory was mixed across entities,” it added.

In the wealth and asset management segments, the banks’ results were also mixed, Fitch said.

While JP Morgan and Goldman Sachs posted healthy revenue increases, for many of their rivals, these revenues were flat or down modestly, it noted.

“However, client assets or assets under management were uniformly up, reflecting net new inflows and market appreciation,” it said.

At the same time, banks’ expenses were inflated in the fourth quarter, with hefty one-time charges for job cuts and to replenish the industry’s deposit insurance fund, Fitch reported.

“For the full year, expenses rose by more than 11% on average across the group. However, banks confidently pointed to expense stability in 2024, backed up by industry-wide job cuts,” it said.

Rising credit pressures in the consumer loan and office real estate segments also drove an increase in net charge-off ratios at most banks. Year over year, the median net charge-off ratio increased by 24 basis points, Fitch said.

In the year ahead, banks are expected to face “manageable levels of deterioration” in their credit quality, “including deterioration modestly beyond pre-pandemic levels for credit cards,” it noted.

“Importantly, banks’ loss-absorbing capacity remained historically strong, demonstrating readiness to manage an uncertain macroeconomic and regulatory environment,” Fitch said.

It expects banks to “continue to preserve capital given regulatory uncertainty pending finalization of proposed capital rules.”

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.

Blackstone Real Estate says it will purchase all outstanding shares in Tricon Residential Inc. and take the Toronto-based rental development company private.

New York-based Blackstone, the world’s largest alternative asset manager, says it will pay about US$11.25 per common share for Tricon, which equates to a US$3.5 billion equity transaction.

Tricon has agreed not to declare its quarterly dividend while the transaction is pending, and says its dividend reinvestment plan will be suspended.

Blackstone Real Estate Income Trust Inc. will maintain its ownership stake of about 11% once the deal closes.

The companies expect the deal to close in the second quarter of this year, but warn the deal is subject to customary closing conditions and needs regulatory approval.

Tricon is an owner, operator and developer of about 38,000 single-family rental homes in the U.S. and multi-family apartments in Toronto.

In September, Blackstone opened a Toronto office, having hired Canada Pension Plan veteran Janice Lin as head of its real estate business for Canada.

The Canadian Press

The Canadian Press is a national news agency headquartered in Toronto and founded in 1917.

Staff

The staff of Advisor.ca have been covering news for financial advisors since 1998.

Each week, Advisor.ca reports on notable moves across the financial industry.

• Jeff Macoun, president and chief operating officer of Canada Life’s Canadian operations, plans to step down on Feb. 16. Fabrice Morin, who’s currently executive vice-president of individual wealth and insurance solutions with Canada Life, will move into the role. Macoun has worked for more than 40 years with Canada Life and Great-West Lifeco. Morin joined the company in 2019. Read more.
• Katharine Baran is now senior vice-president, operations, with Wellington-Altus Private Wealth Inc. With more than 20 years of expertise, she’ll work on the firm’s “operational and technological infrastructure” to help with the advisor experience, said a notice. Baran worked most recently with CI Assante Wealth Management and CI Assante Private Client Operations, as senior vice-president of operations.
• Chad Alderson is the new general manager of global technology and operations, Canada, with Broadridge Financial Solutions Inc. A release said he succeeded Karin Yorfido, who was named president of Broadridge Canada in the summer. Alderson will oversee the company’s Canadian wealth, capital markets and asset management activities, coordinating with its product, marketing, technology and operations groups. He comes from TD Bank Group, where he worked for the past six years.
• Matt Berman is president and CEO with Foresters Financial, effective immediately, a promotion from the role he accepted in March of last year (president of Foresters Financial U.S. and Canada). He first joined the company in 2017, a release said, and he has 30 years of industry experience. Berman takes over for René Zanin, who’s been interim president and CEO since July 2023, after Louis Gagnon left the position for personal reasons. Zanin’s new title is global chief legal, compliance and membership officer, a position that encapsulates his former legal and compliance leadership responsibilities as well as new duties. 
• Ali Salahuddin joined the board of directors for the Financial Services Regulatory Authority of Ontario for a two-year term, effective Jan. 11. His industry tenure includes senior experience with institutions such as Citigroup, Merrill Lynch (now Bank of America Merrill Lynch), Bank of Nova Scotia, Royal Bank of Canada, Manulife and Laurentian Bank, a release said.
• Alka Gautam joined iA Financial Corporation Inc.’s board of directors, effective Jan. 17. She has more than 20 years of experience in the reinsurance and insurance industries, a notice said.
• Philippe Côté was named vice-president, private client group and investment services, with Beutel, Goodman & Company Ltd. in December. The investment management firm said in a release that Côté’s been in the industry for nearly 20 years and specializes in Quebec’s multi-family office space.

If you know of other people moves in the financial industry and/or would like us to consider your announcement, email Katie Keir at katie@newcom.ca.

Katie Keir

News

Katie is special projects editor for Advisor.ca and has worked with the team since 2010. In 2012, she was named Best New Journalist by the Canadian Business Media Awards. Reach her at katie@newcom.ca.

TD Bank Group says it expects to earn about $141 million in equity net income in its first quarter of 2024 from its holdings in Charles Schwab as U.S. banks report earnings.

Last year, TD reported $285 million in net income in its first quarter from its investment in Schwab.

TD says adjusted net income should work out to about $230 million, for about a 30% drop from last year’s $328 million.

Canaccord Genuity analyst Matthew Lee says the Schwab results came in slightly higher than expected, but that the financial firm’s outlook for the year disappointed.

Lee said key takeaways for the year from U.S. bank earnings in recent days are net income pressure, improved capital markets and continued credit challenges on commercial real estate loans, some of which translate into Canadian trends as well.

“In terms of cross-border read-throughs, we expect the Canadian banks to see similar trends in capital markets and loan growth but do not necessarily expect to see the same level of [net interest margin] pressure as mortgage renewals help to offset increasing deposit costs.”

Lee said BMO and RBC should benefit the most from improvements in U.S. capital markets, while TD will be most affected by softer net interest income in the country.

Carl De Souza, head of Canadian banking at Morningstar DBRS, said that while banks on both sides of the border face many similar trends, Canadian consumers are much more indebted than in the U.S., so are more rate sensitive.

“Canadian consumers and businesses will continue to get pressured as more loans continue to reprice at much higher rates as they mature.”

Expense control has been a big focus across the banking sector, including Citigroup announcing last week it plans to cut 20,000 jobs over the next two years.

De Souza said that while Canadian banks have already taken steps to reduce expenses, including layoffs, he expects cost control to continue to be a focus and is not ruling out more cuts.

“I wouldn’t say they’re totally done, but what happens is also heavily dependent on how the economy plays out, how credit quality plays out, you know, unemployment and those macro variables play out, because there’s still a lot of uncertainty with respect to the macroeconomic environment.”

Ian Bickis, Canadian Press

Ian Bickis is a reporter with The Canadian Press, a national news agency headquartered in Toronto and founded in 1917.

The latest competition in the investment counsel space comes with a breadth of expertise, as two former BMO execs launch a new firm that aims to raise the bar on serving high-end clients.

Co-founders (and married couple) Andrew Auerbach and Jean Blacklock have launched Delisle Advisory Group, a Toronto-based investment counselling firm for high- and ultra-high-net-worth clients.

Auerbach was previously with BMO for more than two decades, most recently as head of private wealth before retiring in 2022. With Delisle, he’s now capitalizing on the independence trend in wealth management.

In the U.S., registered investment advisor (RIA) firms are positioned to soon claim a third of market share, and Auerbach expects the trend in Canada to follow suit.

“A number of the factors that contributed to that significant growth of the independent channel in the U.S. are here in Canada,” Auerbach said, referring to the greater focus on providing a fiduciary standard and comprehensive, customized planning. “In the coming years, our view is you’re going to see a significant emergence of independent firms, likely through the investment counselling channel.”

Tech is a key part of making that happen, and Delisle has partnered with Purpose Advisor Solutions for an integrated tech platform. (The new firm is using Conquest Planning’s financial planning software and Fidelity is providing custody services.)

Auerbach said Delisle will have no proprietary products, and, with advisors being owners, conflicts are avoided because interests are aligned.

“Being an owner means sharing a vision of what you can bring to clients [and] how to grow the enterprise value of the firm,” he said.

One focus for the firm is the management of family dynamics — Blacklock’s specialty. A former executive with BMO private banking and wealth management, an estate lawyer and an entrepreneur, Blacklock is also a registered psychotherapist.

“Both as a lawyer and running the wealth services business in a large bank, estate planning was … very focused on the end result,” she said, referring to power of attorney and will documents.

That focus is shortsighted, Blacklock suggested.

Most conflict and litigation arise because “we misunderstand the … complexities of the thoughts and feelings of everyone, not only about mortality but about their planning,” she said. “Really important conversations are just not held.”

Delisle advisors will receive one-on-one training with Blacklock to have those complex client discussions, she said, and the firm will provide families with tools to address conflict as well as references to professional help if needed. Such offerings will make planning at Delisle “more broad-based” than is typical in the industry, Blacklock said.

“Those skills of how to help facilitate this level of discovery with families are as unique and specialized as the skills I would have as a portfolio manager,” Auerbach said. “Bringing them together within the firm is something we’re very excited about.”

Auerbach and Blacklock also noted that the firm will scale its capabilities so that services typically offered to only the ultra-high-net-worth segment can be offered to high-net-worth clients as well.

In response to questions about target assets under management and number of advisory teams, Auerbach, the firm’s sole portfolio manager at launch, said, “The most important criteria for us will be cultural alignment. What we are offering families is unique, and it won’t be for every advisor.”

The firm aspires to opening offices across the country, he said, and with the launch, they’ll be talking to families and advisors countrywide about the firm’s value proposition.

Michelle Schriver

News

Michelle is Advisor.ca’s continuing education editor. She has worked with the team since 2015 and been recognized by the National Magazine Awards and SABEW for her reporting. Email her at michelle@newcom.ca.