These forms of investment, issued and promoted by investment trust companies, have underlying portfolios with differing levels of risk and return and varying objectives. The objective of zero dividend preference shares (‘zeros’) is to provide a low-risk return, while income shares and capital shares generally offer a higher level of return, with greater risk.

The Financial Services Authority issued an update on 16 May 2002 and outlined areas it is considering further. These include concerns that some investors may have cause for complaint, particularly if they were not properly informed about the degree of risk involved.

These products are complex and it is important to note that the regulator’s powers in relation to investment trust companies are not the same as they are for other types of investment firms. This in turn limits the extent of our own jurisdiction in relation to complaints about these products. At the time of writing, we have received only a relatively small number of splits complaints, and of these – only about half have been about matters that are within our jurisdiction.

Investment trust companies are not regulated firms and their directors do not need the regulator’s permission or authorisation to carry out their business. So complaints that are purely about the way these companies carry out their day-to-day business are not within our jurisdiction.

A fall in the value of an investment does not, in itself, constitute valid grounds for complaint. And the value of many splits has fallen during the past couple of years because of the decline in the underlying stock market, rather than as a result of any unusual or inappropriate investment or financing arrangements.

We expect that many of the complaints that reach us and do fall within our jurisdiction will come from investors who sought the services of an adviser and invested in a split capital investment trust on the adviser’s recommendation. Where investors did not seek advice but acted on an ‘execution-only’ basis when they bought their shares, their complaints will often not fall within our jurisdiction. Investment within ‘collective vehicles’, such as unit trusts and OEICs, is likely to be within our jurisdiction.

None of the cases we are currently investigating has yet reached the decision stage. The following example is typical of many of the complaints we have so far received where we have concluded that the matter falls outside our jurisdiction.