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Asset manager M&G is suing Royal London over its purchase of a financial adviser platform, saying some of its clients’ pensions were invested in “unduly risky” products before the deal and that it was now under pressure from the authorities 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 savings market.
But in a lawsuit filed at London’s High Court, M&G said that before the deal, the business – also known as Investment Funds Direct Limited (IFDL) – “exposed its clients to risky investments in an inappropriate manner, by unreasonably high percentages of pension funds in those investments”.
M&G is seeking damages of at least £27mn, plus profits, from the partners, saying Royal London failed to properly disclose risks during the procurement process.
In court documents, M&G said that prior to the purchase, the business had made products known as CFP Bonds available on its platform. Some advisers allocated clients their personal pension funds to these bonds.
CFB shares with a face value of around £27mn were bought by 553 investors, according to the case, which was filed last month but has not been previously reported.
M&G said in its lawsuit that there was “no liquid market” for the bonds “outside the IFDL platform” and some buyers complained they could not sell them. It said they met the definition of a “minibond”, risky investments that typically offer high returns and are scrutinized by regulators.
A customer who had £304,000 of their pension invested in debt complained to the IFDL about why it allowed 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 the March decision, cited by the case, the FOS said that “if (Ascentric) had carried out due diligence in accordance with good industry practice it would have concluded that the CFB bonds were an unusual investment and you think”.
One fund manager in particular plans to use the platform to “invest at least 30 percent of each client’s portfolio in bonds, regardless of the type or level of portfolio risk”, meaning “there was and serious consumer risk. “.
Royal London has yet to appear in court. Both companies declined to comment on pending litigation.
In a press release, the M&G added: “IFDL has engaged with the FCA (Financial Conduct Authority), and has been under pressure to set up a redress scheme for all IFDL investors in exotic assets (including and CFB Bonds) and paying customers.
“In the absence of strong cooperation with the FCA, there is a high risk of formal FCA action.”
M&G said in its half-year results in September that it plans to exit the digital adviser platform market as part of a plan to “focus and balance our wealth strategy”.
