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Asset manager M&G is suing Royal London over its purchase of a mutual fund adviser platform, claiming some client pension money was invested in “inappropriately risky” products before the deal and is now under pressure from regulators to pay damages.
In 2020, M&G agreed to buy Ascentrican asset 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 before the deal, the firm — also known as Investment Funds Direct Limited (IFDL) — “exposed its clients to inappropriately risky investments, with an inappropriately high percentage of their pension funds in those investments.” .
M&G is demanding at least £27m in damages, plus interest, from the mutual, alleging Royal London failed to properly disclose risks during the acquisition process.
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 advisers have allocated client funds in self-invested personal pensions to these bonds.
CFB bonds with a nominal value of around £27 million were bought by 553 investors, according to the lawsuit, which was filed last month but not previously disclosed.
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. They were said to meet the definition of “mini bonds,” risky investments that typically offer high returns, and had attracted the attention of regulators.
One customer who invested £304,000 of his pension in bonds complained to the IFDL about why it had allowed the product to be available on the platform, according to court documents.
Others filed complaints with the Financial Ombudsman Service and the Pensions Ombudsman.
In a March decision cited in the lawsuit, the FOS said that “had it (Ascentric) conducted due diligence in accordance with good industry practice, 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 model portfolio in bonds, regardless of the type or level of risk of the portfolio,” which “meant there was a serious risk of harm to consumers.”
Royal London has yet to file a defense with the court. Both companies declined to comment on the ongoing legal proceedings.
In a court filing, M&G added: “IFDL has been proactively engaging with the FCA (Financial Conduct Authority) and has been under pressure to establish a remedial scheme for all IFDL investors in substandard assets (including CFB bonds) and to compensate customers.
“In the absence of proactive engagement with the FCA, there is a significant risk of formal FCA action being taken.”
In its half-year results in September, M&G said it planned to exit the digital adviser platform market as part of a plan to “focus and streamline our wealth strategy”.
