Asset manager M&G has filed a lawsuit against Royal London, claiming that prior to M&G’s acquisition of Royal London’s financial adviser platform Ascentric, clients’ pensions were invested in “inappropriately risky” products, reported Financial Times.
M&G, which announced the acquisition of Ascentric with £15.5bn ($19.42bn) in assets in 2020, is now facing regulatory pressure to compensate affected clients.
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The High Court in London received M&G’s lawsuit, which contends that Investment Funds Direct Limited (IFDL), trading as Ascentric, had “exposed its customers to inappropriately risky investments, with an inappropriately high percentage of their pension funds in those investments”.
M&G is seeking at least £27m in damages plus interest from Royal London.
According to court filings, IFDL had made CFB Bonds available on its platform, which were bought by 553 investors, totalling a face value of about £27m.
M&G’s lawsuit states that these bonds lacked a liquid market outside of IFDL’s platform, leading to customer complaints about the inability to sell them and their classification as “minibonds,” which are known for being high-risk.
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By GlobalDataThe Financial Ombudsman Service (FOS) and the Pensions Ombudsman received additional complaints.
In March 2024, the FOS concluded that Ascentric’s due diligence failed to identify the CFB bonds as non-standard and speculative, posing a high risk of consumer detriment.
In this decision, cited by the lawsuit, the FOS was quoted by the news agency as saying 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”.
The lawsuit also highlighted a fund manager’s intent to invest a minimum of 30% of every client’s model portfolio in the bonds, irrespective of the portfolio’s risk level, further indicating potential harm to consumers.
As of now, Royal London has not submitted a defence.
In the court filing, M&G added: “IFDL has proactively engaged with the FCA [Financial Conduct Authority], and has come under pressure to set up a remediation scheme for all IFDL investors in non-standard assets (including the 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 reported in September 2024, M&G announced plans to exit the adviser digital platform market to “focus and rationalise our wealth strategy,” indicating a strategic shift away from the sector involved in the legal dispute.
