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

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Asset supervisor M&G is suing Royal London over its buy of the mutual’s monetary adviser platform, claiming that some shopper pension cash had been invested in “inappropriately dangerous” merchandise earlier than the deal and that it was now below stress from regulators to pay compensation.

M&G agreed in 2020 to buy Ascentric, a wealth administration platform for advisers with £15.5bn of belongings below administration, as a part of a push on the time to extend its share of the retail financial savings market.

However in a lawsuit filed on the Excessive Court docket in London, M&G claimed that earlier than the deal, the enterprise — also called Funding Funds Direct Restricted (IFDL) — had “uncovered its clients to inappropriately dangerous investments, with an inappropriately excessive share of their pension funds in these investments”.

M&G is demanding damages of at the least £27mn, plus curiosity, from the mutual, alleging that Royal London did not correctly disclose the dangers throughout the acquisition course of.

In courtroom paperwork, M&G stated that earlier than the acquisition, the enterprise had made merchandise often known as CFP Bonds out there on its platform. Some advisers allotted shopper funds in self-invested private pensions to those bonds.

CFB Bonds with a face worth of about £27mn had been bought by 553 buyers, in keeping with the lawsuit, which was filed final month however has not been beforehand reported.

M&G claimed in its lawsuit that “there was no liquid market” for the bonds “exterior IFDL’s personal platform” and a few clients complained they’d been unable to promote them. It stated they met the definition of “minibonds”, dangerous investments that sometimes provides excessive returns and have drawn scrutiny from regulators.

One buyer who had £304,000 of their pension invested within the bonds complained to IFDL about why it had allowed the product to be out there on the platform, in keeping with the courtroom paperwork.

Others made complaints to the Monetary Ombudsman Service and the Pensions Ombudsman.

In a choice in March, cited by the lawsuit, the FOS stated that “if it [Ascentric] had carried out due diligence in accordance with good business apply it might have concluded that the CFB bonds had been a non-standard and speculative funding”.

One fund supervisor specifically deliberate to make use of the platform to “make investments at the least 30 per cent of each shopper’s mannequin portfolio within the bonds, whatever the sort or threat degree of the portfolio”, which “meant there was a severe threat of shopper detriment”.

Royal London has but to file a defence with the courtroom. Each corporations declined to touch upon the continued authorized proceedings.

Within the courtroom submitting, M&G added: “IFDL has proactively engaged with the FCA [Financial Conduct Authority], and has come below stress to arrange a remediation scheme for all IFDL buyers in non-standard belongings (together with the CFB Bonds) and to compensate clients.

“Within the absence of proactive engagement with the FCA, there’s a vital threat of formal FCA motion being taken.”

M&G stated in its half-year ends in September that it was planning to exit the adviser digital platform market as a part of a plan to “focus and rationalise our wealth technique”.