The agony of doing the splits

It could be a long haul for split-capital investors seeking compensation, says James Daley

For those who were unlucky enough to have invested - and lost - their money in split-capital investment trusts between 2000 and 2002, the road to compensation has been a long and frustrating one.

For those who were unlucky enough to have invested - and lost - their money in split-capital investment trusts between 2000 and 2002, the road to compensation has been a long and frustrating one.

But while the news of a Christmas Eve settlement between the Financial Services Authority and 18 of the firms involved in the industry may have appeared to put the end in sight, the unfortunate reality is that it will still be many months before most investors get their hands on a penny. And for many more, there is still a chance of getting little or nothing back at all.

Whether or not you qualify for compensation, and how much you will get, depends on exactly which split-cap fund you invested in. If you invested in the zero-dividend preference shares of a fund managed by one of the 18 firms that settled with the FSA, listed below, then you will definitely get something - providing you have not already received a payment through the Financial Ombudsman Service (FOS), and your losses from splits total more than £250. How much compensation you receive will depend on how many other people claim.

The 18 firms collectively contributed £143m to the split-cap pot, and once all claims have been made by investors in the qualifying funds, the pot will be divided up. A closing date for applications will be set for later in the year, with the first payments being sent out in the final quarter of this year. The compensation fund - which has been set up under the name Fund Distribution Ltd, and is being managed by HBOS's former finance director, Mike Ellis - plans to make secondary and final payments by the end of the year. However, there is no guarantee of this.

Once you have received your offer from the compensation fund, you are under no obligation to accept it. However, if you do, you will be forced to surrender your rights to pursue any other means of securing compensation. Investors who appeal for compensation from the main pot stand to get between 50 and 80 per cent of their initial investment returned. The only people who stand to do better than this, are those who invested in Aberdeen's Progressive Growth fund, an open-ended trust which invested in a portfolio of zero-dividend preference shares.

The Progressive Growth fund has its own so-called "uplift plan" which is being administered by Aberdeen. Current investors in this fund stand to get their initial investment fully refunded.

Former investors, who have already sold out of the fund, will receive between 50 and 90 per cent of their money back. If you were, or are, an investor in this fund, and you have not already heard from Aberdeen, then call it on 0845 300 2890. All investors must reply to Aberdeen by the end of February, after which about 20 per cent of investors' losses will be returned. The remainder will be paid on the fifth anniversary of the date that the investor bought the fund.

For those who lost money in funds managed by Exeter Fund Managers, BFS Investments or BC Asset Management, the road to compensation will be more complicated and provides no guarantee of success.These three firms, along with Teather and Greenwoods, the broker, were excluded from the settlement with the FSA, and investors in their funds will have to make their plea for compensation through the FOS or through the courts.

For investors in Exeter's two unit trusts which invested in zeros, their first port of call is to complain to the company that sold them the investment - either their financial adviser, or Exeter itself. If they have no luck here, they must refer their complaint to the FOS.

If you are an investor in one of BFS's or Exeter's investment trusts, you can only refer your complaint to the FOS if you were sold your investment by a financial adviser. If you bought direct from the company and you are looking to complain on the grounds that you are concerned about collusion in the sector, you will need to look at joining one of the handful of class legal actions that are being mounted. This is a risky route, however, with only a minimal chance of success.

Martin Harris, a solicitor for Oakwell, represents many clients who lost sizeable sums investing in split-capital invest- ment trusts managed by BFS Investments and its director, Tony Reid. Mr Harris is pursuing both BFS and Mr Reid for compensation for his clients. As BFS was one of only four companies involved in the split-cap sector, which was not included in the Financial Services Authority's settlement, investors in its funds stand to get no money back unless they are prepared to pursue BFS and its directors through the courts. Investors who bought their investments through an adviser may be able to make a claim for mis-selling through the Financial Ombudsman Service.

BFS was thrown out of the FSA's settlement by the 18 other companies involved, after it said it could only contribute a small seven-figure sum to the compensation pot. Its investors' collective losses run into tens of millions of pounds. Although BFS no longer has any substantial assets, its directors paid themselves more than £18m between 1996 and 2003. Its aggrieved investors believe Mr Reid should return some of this to them.

If more successful claims are landed on BC, BFS or Exeter than they can afford, they will be forced to declare themselves insolvent, and will be able to dump their liabilities on the Financial Services Compensation Scheme. But investors should prepare themselves for a long haul and the likelihood of no compensation at all.

For more details on the main compensation fund, visit www.funddistribution.org.

On the Aberdeen deal, go to www.aberdeen-asset.co.uk.

THE FIRMS INVOLVED

The 18 companies that settled with the FSA: Aberdeen Asset Managers

ABN Amro

Brewin Dolphin

Britannic Asset Managers

Collins Stewart

Edinburgh Fund Managers

F&C (formerly ISIS)

Framlington

Gartmore

Govett Investments

HSBC Bank

Jupiter Asset Managers

Legg Mason Investments

Morley

New Star

Premier Fund Managers

Royal London

UBS

And the four that didn't:

BC Asset Management

BFS Investments

Exeter Fund Managers

Teather & Greenwood

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