Investors who lost savings in the ˜split-capital scandal" have been informed of compensation arrangements that will only pay back 40% of their lost money. Fund Distribution Ltd, the company which was set up by the Financial Services Authority to handle the distribution of £142.6 million of split capital compensation, announced that around 25,000 investors would be eligible for payments, and will only receive 40p for every £1 lost.
Letters to investors explaining how payments have been calculated have been sent out. In total, 45,000 separate investments are covered in the compensation deal, with investors holding an average of 1.8 eligible investments. The average loss for each investment was £6,400, with investors losing an average of £11,400 each.
Claimants have until 15 May this year to accept the offer otherwise it will be withdrawn. If accepted, payments will be made within 4-5 weeks.
Our view
The compensation may seem poor to investors who have lost money and we agree. The question, as ever, is whether compensation should actually be paid. No doubt there are some who did not have the risks explained and deserve redress. There will no doubt be some who benefit even though they were aware of the risks. All too often, the financial industry, despite warnings in all its literature and reports about potential losses, ends up footing the bill if the client loses money.
As advisers, we are extremely careful to point out the risks of all investment. Indeed, we did not recommend any split capital trusts and we have no mortgage endowments on our books. That said, we still believe that we are in a game of 'Russian Roulette' and at any point, the authorities will deem that if a client makes losses, we are to blame, even if we told them so!