M&G sues Royal London over client exposure to ‘inappropriately risky investments’

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Asset manager M&G is suing Royal London over its purchase of a mutual financial advice platform, claiming some of its clients’ pensions were invested in “inappropriately risky” products before the deal and is now under pressure from regulators to pay compensation.

M&G has agreed to buy Ascentric in 2020a wealth management platform for advisers with £15.5bn of assets under management as part of a drive to increase its share of the retail savings market.

But in a claim 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 clients to inappropriately risky investments with an inappropriately high percentage of their pension funds in those investments”. .

The M&G is seeking at least £27m in damages, plus interest, from the mutual company, claiming Royal London failed to adequately disclose risks during the buying 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 allocated client funds to these bonds in the form of self-invested personal pensions.

About 27 million pounds worth of CFB bonds were bought by 553 investors, according to the lawsuit, which was filed last month but previously undisclosed.

M&G argued 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. It said they fit the definition of “mini-bonds”. investments that typically offer high returns and are monitored by regulators.

A customer who invested £304,000 of his pension in bonds complained to 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 March decision cited in the claim, the FOS said that “if it [Ascentric] having done due diligence in accordance with good industry practice, it should conclude that CFB bonds are 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 portfolio type or risk level,” which “represented a serious risk of consumer harm.”

Royal London has yet to file a defense in court.Both companies declined to comment on ongoing legal proceedings.

In the lawsuit, the M&G added: “The IFDL has actively co-operated with the FCA [Financial Conduct Authority]and came under pressure to establish a recovery scheme for all IFDL investors in non-standard assets (including CFB Bonds) and to compensate customers.

“In the absence of active engagement with the FCA, there is a significant risk of formal FCA action.”

M&G said in its half-year results in September that it was to exit the adviser digital platform market as part of a plan to “focus and rationalize our wealth strategy”.