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Farrow&#39s view

It is unlikely to outsell Harry Potter or get nominated for the Booker prize but Andrew Adams, a lecturer at Edinburgh University, is extremely proud of his new book The Split Capital Investment Trust Crisis.

Not the sexiest of titles admittedly, but I suspect that lawyers may have had intervened if the words “magic circle”, “corruption” or “collusion” had been used.

The timing of the book may raise a few eyebrows, particularly among the 50,000 investors who have lost money in splits because for them, the book is far from closed. It is almost two years to the week that the Treasury Select Committee summoned those at the heart of the scandal, including the AITC, the FSA and Aberdeen, for a second grilling. People are still waiting for compensation.

There is hope, of course: 16 of the 22 groups being investigated by the FSA have raised around £150m, with the three big banks – UBS, ABN Amro and HSBC – supposedly putting £50m into the pot. If a deal can be struck with the PI insurers another £50m-£60m may be added to the settlement figure. With a bit of luck a total of around £270m plus could be on offer to split cap victims.

But investors hoping to get a handout this side of Christmas will be disappointed. Raising the money is just the first hurdle. How much each fund manager stumps up is still unknown, although Aberdeen is sure to be the top payer. There are already rumours that a couple of groups involved, BC Asset Management and BFS, are pleading poverty, while two others, Teather & Greenwood and Royal London, are not playing ball.

Even when all the money has been counted up, there is the complex issue of how the money is divided. Who gets the money and how much are set to be massive stumbling blocks. For example, will people who have been investigated for the alleged collusion, or made money out of splits before their demise, benefit from any compensation if they are still investors in splits?

The sad truth is that, as Adams admits in his book, compensation could be a long time coming.

The 240-page book has chapters from John McFall, the outspoken chairman of the Treasury Select Committee, and Aberdeen&#39s Piers Currie, who experienced at first hand one of McFall&#39s interrogations.

There is also a damning chapter by Adams on the press coverage. He says the general standard of reporting “varied enormously… much of it was poor”, adding that there was “a general lack of understanding of the products involved” and the press “relied on &#39experts&#39 who had a vested interest in the success of the splits market”. He also notes how the positive tone of splits was swiftly followed by very negative comment when the “chickens came home to roost”.

Many of the points Adams makes are difficult to disagree with, particularly the overtly positive coverage of zeros.

The answer, he suggests – and not for the first time – is a qualification devoted to financial journalism. Alternatively journalists should be encouraged to take the Financial Planning Certificate or Investment Management Certificate exams. But does Adams really believe that journalists with an FPC or IMC qualification would have unearthed the complexities of splits? I&#39m not so sure. How many IFAs and stockbrokers foresaw the crisis? Even the FSA failed to do so – it still labelled zeros as low risk as late as June 2002, while Adams&#39 own paper – For Whom the Barbell Tolls – was not published until April 2001, too late for most investors.

These are not excuses. There will be very few, if any, personal finance journalists (myself included) who have not in the past described zeros as “low risk”. A couple of journalists, Jean Eaglesham in 1998 and Lawrence Lever in 1999, were way ahead of the crowd in spotting a potential “pack of cards” scenario. But should more journalists have questioned the structure of split capital trusts earlier than they did? Undoubtedly, yes. Have we learned some lessons? I suspect we have.

Personal finance journalists rely heavily on informed opinion from people working within financial services, be they IFAs, fund managers, analysts or independent consultants. Most will have a vested interest of some description and it is our job to spot when we have been thrown a line. In the case of splits many people, not just journalists, failed to see what was coming and for that we are all to blame.

Paul Farrow is a perso-nal finance reporter at the Sunday Telegraph


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