Asset manager M&G has filed a lawsuit against Royal London, alleging that the financial adviser platform it acquired from the mutual, Ascentric, exposed clients to risky pension investments prior to the deal. M&G claims it is now under regulatory pressure to compensate affected customers.
The dispute centers on M&G’s 2020 purchase of Ascentric, officially known as Investment Funds Direct Limited (IFDL), which managed £15.5bn in assets at the time. The acquisition was part of M&G’s strategy to expand its presence in the retail savings market. However, M&G is now seeking damages of at least £27 million, plus interest, asserting that Royal London failed to disclose these risks during the transaction.
Allegations of Risky Pension Investments
According to court filings submitted to the High Court in London, M&G claims that before the acquisition, IFDL had made risky investment products known as CFB Bonds available on its platform. These bonds, which were marketed to advisers for self-invested personal pensions (SIPPs), are described as “minibonds”—high-risk products that offer significant returns but lack liquidity.
M&G alleges that approximately £27 million worth of CFB Bonds were purchased by 553 investors, many of whom later reported being unable to sell the bonds. One customer who had £304,000 invested in these bonds reportedly raised complaints about the platform’s decision to allow such products.
The Financial Ombudsman Service (FOS) has also been involved in the matter. In a March decision referenced in the lawsuit, the FOS stated that “if [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.”
Regulatory Pressure and Compensation Claims
M&G alleges in its lawsuit that regulators, including the Financial Conduct Authority (FCA), are pressuring IFDL to create a remediation scheme for investors in these non-standard assets. The filing warns of the risk of formal regulatory action if such steps are not taken.
In its September half-year results, M&G announced its intention to exit the adviser digital platform market, a move aligned with its plan to streamline its wealth strategy.
Royal London Yet to Respond
Royal London has not yet filed a defense in the case. Both M&G and Royal London declined to comment on the ongoing legal proceedings.
The case highlights growing scrutiny from regulators over the risks associated with high-yield investments like minibonds, especially when they are included in pension portfolios. The outcome of this lawsuit may have significant implications for the UK’s wealth management and financial advisory sectors.
