Aberdeen Asset Management, the largest provider of split capital investment trusts, yesterday lost a test case over the collapse of the sector and was ordered to pay compensation to customers.
If the financial ombudsman's ruling is upheld, Aberdeen may have to pay £40m to the 7,000 customers who lost money by investing in its Progressive Growth trust, which was advertised as being a very safe investment.
In what turned out to be a highly embarrassing move, Aberdeen marketed the trust as being "the one-year-old which lets you sleep at night". After the trust dramatically slumped in value, Aberdeen agreed to top up customers' funds so that they had not lost out.
But up to 300 customers who invested in the trust also complained to the ombudsman.
Despite the fact that Aberdeen effectively offered to compensate investors in Progressive Growth, it said it "did not agree" with the ombudsman's initial finding and has appealed for a further hearing.
If Aberdeen is forced to pay compensation, the bill would probably be covered by insurance it has in place. It has not made any further provisions on its own balance sheet for possible compensation.
The ombudsman, which looks at whether consumers have been given adequate advice, has received 4,000 complaints over the collapse of the split cap industry. So far it has considered 1,000 cases, largely rejecting them because investors did not buy into the trusts on the back of financial advice.
Yesterday's dispute is the first of three test cases it will consider where it does believe advice has been given. It would not disclose how much compensation it has asked Aberdeen to pay, but it can demand pay-outs of up to £100,000 per customer. Aberdeen's shares slipped 2.5p yesterday to 96p.
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