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Asset manager M&G has sued Royal London over its purchase of the joint financial advice platform, claiming that some clients' pension funds had been invested in “inappropriately risky” products before the deal and that it is now under pressure from regulators to pay damages.
In 2020, M&G agreed to buy Ascentrica wealth management platform for advisers with £15.5bn of assets under management, was part of a drive at the time to increase its share of the retail savings market.
But in a lawsuit filed in the High Court in London, M&G claimed that prior to the deal, the company – also known as Investment Funds Direct Limited (IFDL) – had “exposed its clients to inappropriately risky investments, with an inappropriately high proportion of their funds.” “. Pension funds in those investments.”
M&G is seeking damages of at least £27 million, plus interest, from the mutual, alleging that Royal London failed to properly disclose risks during the takeover.
In court documents, M&G said that prior to the acquisition, the company had made products known as CFP Bonds available on its platform. Some advisors have allocated client funds in self-invested personal pensions to these bonds.
CFB bonds with a face value of about £27 million were purchased by 553 investors, according to the lawsuit, which was filed last month but not 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 of being unable to sell them. It said they meet the definition of “mini-bonds,” which are risky investments that typically offer high returns and are subject to scrutiny from regulators.
One client, who had invested £304,000 of his pension in bonds, complained to the IFDL about why it had allowed the product to be made available on the platform, according to court documents.
Others lodged complaints with the Financial Ombudsman Service and the Pensions Ombudsman.
In a March decision cited in the lawsuit, the FBI said that “if Ascentric had conducted due diligence in accordance with good industry practices, it would have concluded that the CFB bonds were a substandard and speculative investment.”
One fund manager in particular planned to use the platform “to invest at least 30 percent of each client’s typical portfolio in bonds, regardless of portfolio type or risk level,” which “means there is a serious risk of harm to the consumer.” “.
Royal London has not yet presented a defense before the court. The two companies declined to comment on the ongoing legal proceedings.
In a court filing, M&G added: “IFDL has proactively co-operated with the Financial Conduct Authority (FCA), and has been under pressure to put in place a remedial plan for all IFDL investors in non-standard assets (including CFB bonds) and to compensate clients.
“In the absence of proactive engagement with the FCA, there is a significant risk of formal action from the FCA.”
M&G said in its half-year results in September that it plans to exit the digital advisory platforms market as part of a plan to “focus and rationalize our wealth strategy”.
