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Asset manager M&G is suing Royal London over its purchase of a mutual financial adviser platform, claiming some client pension money was invested in “unreasonably risky” products on the left deal and that it is now under pressure from regulators to pay compensation.
M&G agreed in 2020 to buy Ascentrica wealth management platform for advisers with £15.5bn of assets under administration, 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 business – also known as Investment Funds Direct Limited (IFDL) – “exposed its customers to undue risk investments, with an inappropriately high percentage of their pension funds in those investments”.
M&G is seeking damages of at least £27 million, plus interest, from each other, saying Royal London failed to properly disclose risks during the claims process.
In court documents, M&G said that before the takeover, the business made products known as CFP Bonds available on its platform. Some advisers allocate client funds to self-invested personal pensions in these bonds.
CFB Bonds with a value of around £27 million were bought 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 customers complained they could not sell them. It says they meet the definition of “minibonds”, risky investments that usually offer high returns and have drawn scrutiny from regulators.
A customer with £304,000 of their pension invested in bonds complained to IFDL about why it allowed the product to be used on the platform, according to court documents.
Others complained to the Financial Ombudsman Service and the Pensions Ombudsman.
In a decision in March, cited in the lawsuit, the FOS said that “if it (Ascentric) had carried out due diligence in accordance with good industry practice it would have concluded that the CFB bonds were a non-standard and speculative investment “.
A fund manager in particular plans to use the platform to “invest at least 30 percent of each model of the client’s portfolio in bonds, regardless of the type or risk level of the portfolio”, which “means that there is a serious risk of consumer damage”.
Royal London has yet to file a defense in court. Both companies declined to comment on the ongoing legal proceedings.
In the court filing, the M&G added: “IFDL is actively engaging with the FCA (Financial Conduct Authority), and is under pressure to develop a remediation scheme for all IFDL investors in non-standard assets (including CFB Bonds) and customer fees.
“Without active engagement by the FCA, there is a significant risk of formal FCA action being taken.”
M&G said in its half-year results in September that it plans to exit the adviser digital platform market as part of a plan to “focus and rationalize our wealth strategy”.