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Asset manager M&G sued Royal London over its purchase of the mutual’s financial advisory platform, claiming some client pension money had been invested in “inappropriately risky” products before the deal and was now under pressure from regulators to pay compensation.
M&G agreed in 2020 to buy Ascentric, a wealth management platform for advisers with £15.5bn of assets under management, as part of a push at the time to increase its share of the retail savings market.
But in a lawsuit filed at London’s High Court, M&G claimed that before the deal, the business — also known as Investment Funds Direct Limited (IFDL) — had “exposed its customers to inappropriately risky investments, at an inappropriately high rate of pension funds in these investments’.
M&G is demanding at least £27m in damages, plus interest, from the mutual, claiming Royal London failed to properly disclose risks during the takeover process.
In court documents, M&G said that before the takeover, the business had made products known as CFP Bonds available on its platform. Some advisers allocated client funds to personal pensions which they themselves invested in these bonds.
CFB bonds with a face value of about £27m were bought by 553 investors, according to the suit, which was filed last month but has not been previously reported.
M&G claimed in its lawsuit that there was “no liquid market” for the bonds “outside IFDL’s own platform” and some clients complained they were unable to sell them. He said they met the definition of “minibonds,” risky investments that typically offer high returns and have drawn scrutiny from regulators.
A customer who had invested £304,000 of his pension in the bonds complained to IFDL for allowing the product to be available on the platform, according to court documents.
Others made complaints to the Financial Ombudsman Service and the Pensions Ombudsman.
In a March decision, cited in the lawsuit, FOS stated that “if [Ascentric] had he conducted due diligence in accordance with good industry practice, he would have concluded that the CFB bonds were an atypical and speculative investment.”
In particular, one fund manager planned to use the platform to “invest at least 30 percent of each client’s portfolio model in bonds, regardless of the type or risk level of the portfolio,” which “meant there was a serious risk of consumer harm “.
The Royal London has yet to file a defense in court. Both companies declined to comment on the ongoing legal proceedings.
In the court filing, M&G added: “IFDL has proactively co-operated with the FCA [Financial Conduct Authority]and has come under pressure to set up a rehabilitation program for all IFDL investors in non-standard assets (including CFB bonds) and compensate clients.
“In the absence of proactive engagement with the FCA, there is a significant risk of formal FCA action.”
M&G said in its half-year results in September that it planned to exit the digital advice platform market as part of a plan to “focus and streamline our wealth strategy”.
