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Fund firms bear brunt of criticism over splits

IFAs escape with little criticism from the Treasury select

committee&#39s report into the split-cap investment crisis, published

last week, which reserved its harshest comments for fund managers

responsible for the products.

The FSA has also been largely let off by the committee, which only

states that the regulator had not been proactive enough in

troubleshooting and that responsibility for split caps should be

brought into its remit.

However, the report accuses fund managers of a “significant lapse in

responsibility” for not fully understanding how the new-style splits

would react to falling markets.

The report says there is little doubt of the existence of a “magic

circle operating in a manner harmful to the interests of


It singles out only one fund manager, Aberdeen, saying it was guilty

of being recklessly misleading in its promotional material.

The report accepts that not all split investors deserve compensation,

even if the investment was made on the recommendation of an adviser,

although it concludes that there is “little doubt there is a wide

range of cases in which it will be found that compensation is


When outgoing FSA chairman Howard Davies appeared before the TSC last

October to defend the regulator&#39s handling of the issue, he was

accused by MPs of “falling asleep at the wheel”. But the committee

has significantly watered down its criticism of the FSA, stating that

it was limited as to what it could do as it does not have direct

responsibility for splits.

Chartwell Asset Management associate director Sue Whitbread says: “It

is good to see that they are not insinuating that IFAs should have

been aware of something that they could not have been. But this is

only one piece of the puzzle. We are waiting to see what the FSA


•Full report, p14


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