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Asset manager M&G is suing Royal London over its purchase of a financial adviser platform, claiming that some of its clients' pensions were invested in “unduly risky” products before the deal and were now under pressure from regulators to pay compensation.
M&G agreed in 2020 to buy Ascentricwealth 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 the High Court in London, M&G claimed that prior to the deal, the business – also known as Investment Funds Direct Limited (IFDL) – “exposed its customers to unduly risky investments, with an unduly high percentage of them being pension funds.” “.
M&G is seeking damages of at least £27mn, plus interest, from both sides, alleging that Royal London failed to properly disclose risks during the acquisition process.
In court documents, M&G said that prior to the acquisition, the business made products known as CFP Bonds available on its platform. Some advisers allocate the client's money to the pension of the person who invested in these bonds.
CFB bonds with a face value of around £27mn were bought by 553 investors, according to the lawsuit, which was filed last month but was not previously disclosed.
M&G claimed in its lawsuit that there was “no liquid trading” of the bonds “outside the IFDL platform” and some buyers complained that they were unable to sell them. It said they meet the definition of “minibonds”, risky investments that offer high returns and attract attention from regulators.
One customer who had £304,000 of their pension invested in bonds complained to the IFDL about why it allowed the product to be available on the platform, according to court documents.
Others have made complaints to the Financial Ombudsman Service and the Pensions Ombudsman.
In a decision in March, quoted by the law, the FOS said that “if (Ascentric) had exercised due diligence in accordance with the soundness of the business it would have concluded that the CFB bonds were an investment and a speculative investment”.
One fund manager in particular planned to use the platform “to invest at least 30 percent of each client's portfolio model in bonds, regardless of the type or level of risk of the portfolio”, which “means that there is a high risk of customer harm.” “.
Royal London is yet to defend itself in court. Both companies declined to comment on the ongoing legal process.
In the court filing, the M&G added: “IFDL has been in immediate contact with the FCA (Financial Conduct Authority), and has come under pressure to establish a remedial scheme for all IFDL investors in non-performing assets (including CFB Bonds) and Redress consumers.
“In the absence of effective engagement with the FCA, there is a high risk of FCA legal action being taken.”
M&G said in its half-year results in September that it plans to exit the consultancy in the digital platform market as part of a plan to “focus and streamline our strategy”.