Apr 21, 2007 04:30 AM
 

BETH MARLIN

SPECIAL TO THE STAR

Facing a class-action lawsuit over heavy foreign-exchange charges in registered accounts, Bank of Montreal's BMO Nesbitt Burns is slashing currency-exchange fees by 50 per cent.

According to an internal April 2 memo to financial advisers for the full-service, bank-owned brokerage house, BMO Nesbitt Burns will reduce its foreign exchange spread from 150 to 75 basis points for transactions under $30,000 in June "to minimize the impact of the exchange rate conversion costs on U.S. holdings in RRSP accounts."

A basis point is one-hundredth of a percentage point or 0.01 per cent. The spread refers to the added amount over the bank's costs that customers are charged for foreign-currency exchange.

For trades of $30,000 to $150,000, the spread will be reduced to 70 from 90 basis points, while trades over $150,000 will continue to be charged the same book spread of about 20 to 30 basis points, the memo says.

A legal action led by former BMO Nesbitt Burns adviser and client James Richard MacDonald alleges the currency conversions are unauthorized and contrary to the bank's fiduciary duty to registered clients, as outlined by the Trust and Loans Companies Act.

MacDonald says thousands of dollars were charged to his own BMO Nesbitt Burns registered retirement accounts for unauthorized foreign currency conversions after the sale of U.S. stocks and bonds. He is hoping to have his legal action certified as a $100 million class-action lawsuit on behalf of the bank's RRSP and other registered-account clients.

MacDonald pointed out the fees of 1 1/2 to 2 per cent are particularly egregious when clients plan to immediately use the funds to buy another U.S. denominated stock or bond, requiring them to pay a second fee to convert the newly changed currency back into the U.S. currency

In the April 2 memo, BMO Nesbitt Burns advisers and their assistants are advised that they can call the bank's foreign exchange trading desk to "book rates for same-day buy and sell of U.S. securities in registered accounts" to "eliminate the F/X spread on the net amount of the trades provided they are done within the same day.

"The F/X desk will provide a rate which can be used on both the buy and sell trades," the memo continues. The memo, however, does not suggest that financial advisers or their assistants are required to provide this service for their clients, only that they can choose to take this measure to save their clients money.

The memo does not say whether this fee-saving option will be available to clients making electronic trades through self-administered registered accounts with the discount BMO InvestorLine service.

Asked to confirm the amount of the fee cuts and whether they will also apply to RRSP accounts within Investorline, BMO's discount brokerage house, JoAnne Hayes, spokesperson for BMO Financial Group, said only that a policy change has been made for registered accounts with BMO Nesbitt Burns and BMO InvestorLine.

"On a regular basis, we review our fees and interest rates to ensure our pricing is competitive. As a result, our policies, including those that apply to U.S. holdings in registered accounts, have been modified and we are in the process of communicating this to clients," Hayes said.

The new policy and fee schedule, to take effect in June, is expected to be sent out with the bank's next newsletter containing the March 31 quarterly results. The bank is required to give clients 60 days notice of fee changes.

Meanwhile, Scotiabank's ScotiaMacLeod Direct Investing and TD Waterhouse's brokerage said neither planned to change their fees or their policy to allow clients to avoid unnecessary currency conversion fees by holding U.S. currency in registered accounts. A RBC representative could not be reached for comment. The banks have previously said that "system requirements" do not allow them to easily provide for foreign currency holdings within registered accounts.

But spokesperson Lisa Hodgins said TD Waterhouse is "always assessing our clients' needs."

David Gamble, a spokesperson for the Department of Finance, said that the law was changed in 2001 to allow foreign currency to be held in RRSPs, registered retirement income funds or registered education savings plans.

However, Gamble said that although institutions administering registered accounts are governed under the federal Trust and Loans Companies Act, alleged violations of their legislated fiduciary duty is a matter for the courts.

Details of the class action against BMO may be found at www.investorvoice.ca.