Some rather historic news today: RBC Direct will be the first bank-owned online broker to stop charging (as of mid-May) currency-conversion chargesin registered plans, Jonathan Chevreau reports. One would expect other online discount brokerages to follow suit. For a backgrounder on this issue, see the Appendix below.
Investor advocate Ken Kivenko attributes RBCs recent decision to class-action lawsuits brought by some disgruntledindividuals, particularly James R. MacDonald. There is no doubt in my mind that RBC’s decision to end the abuse is due to a class action lawsuit. The driving force behind this class action is Investor Advocate James MacDonald.
Ken Kivenko goes on to praise Mr. MacDonald. While politicians, securities commissions, SRO’s and OBSI looked on, he took the initiative. Millions of dollars will be saved by Main Street in their retirement accounts. We welcome Mr. MacDonald to the Advocacy Hall of Fame.
The question now arises: what about themillions of dollars in currency-conversion fees Canadian investors have paidsince 2001 to the banks? Will they be returned, in whole or part, as out-of-court settlements or judgments in class action suits?
There is some big money involved. In one class-action suit launched in 2006 by Barry Skopit against BMO Nesbitt Burns, the claim seeks restitution that includes:
general damages in the amount of $500 million special damages of $10 million punitive damages of $ 5 million compensation for unjust enrichment in the amount of $500 million
The bank brokerages were once required by government to have only Canadian currency in registered accounts. So whenever an investor bought a U.S. security, there was a conversion to U.S. dollars; when the security was sold, the U.S.-dollar proceeds were automatically converted back into Canadian dollars.
The government requirement forcing currency conversions ended in 2001. But the banks kept ondoing the conversions and charging currency fees, which averaged 1% to 2% in the bid-ask spread. The Investment Dealers Association of Canada gave the OK to U.S. dollar balances in RRSPs and still, the banks continued to charge the fees.