FINANCIAL advisers said that investors who lost hundreds of millions of pounds in split-capital investment trusts would be very disappointed by the level of compensation announced this week.

And in a further twist, it emerged that nearly 15,000 of the 40,000 people who applied for redress will receive nothing at all.

Fund Distribution Limited (FDL), the company set up to deal with claims, said that it would be making an initial payment of £115 million to 25,000 qualifying investors — equal to 40 per cent of their estimated total losses of £290 million.

A further £27 million — the remainder of FDL’s £142 million fund — will be held back for a second distribution, but Mike Ellis, the fund commissioner, said that some of this money could be absorbed by further payouts on the first distribution. At best, the second payout could amount to about 9 per cent of investors’ losses.

Philippa Gee, of Torquil Clark, the independent financial adviser, says: “Those investors who suffered at the hands of these trusts are now left with an extremely sour taste in their mouths. This offer is on the low side of what we expected. If a fault has been found, then compensation should be at a more appropriate level to rectify the damage caused.”

Tens of thousands of investors lost money in split-capital investment trusts, which are often highly geared investment vehicles. They are usually divided into different classes of shares: income, capital and zero-dividend. It is investors in the zero-dividend shares, which were sometimes misrepresented as low-risk, that make up the vast majority of the claimants. Others include those holding a handful of unit trusts and other products that invested in “zeroes”. They had to have held the zeroes between July 1, 2000, and June 30, 2002, in the long- running bear market.

The Financial Services Authority, the chief City watchdog, reached a settlement in December 2004 with the firms involved in the split-capital scandal, under which it agreed to make no judgment about possible regulatory breaches and impose no formal fines in return for a payment into the compensation fund managed by FDL.

Some of the best-known firms in the City were named and shamed. They include Aberdeen Asset Managers, a subsidiary of Aberdeen Asset Management, Brewin Dolphin, Collins Stewart, F&C Asset Management, Framlington, Gartmore, HSBC, Jupiter and New Star.

Now the 25,000 victims who qualify for redress have until May 15 to decide whether to accept the offer, though those who decline will receive nothing. Mr Ellis said that FDL will consider complaints about individual payouts, but only on the ground of a mistake in calculation rather than the level of compensation.

He added that the 14,000 claimants who had been refused a payout could also complain, though the majority of these — more than 9,300 — had been rejected because they had not actually incurred any loss, while a further 1,200 victims had suffered losses of less than £250, which was the threshold for paying compensation.

Claims were also turned down because the investment was not one of those qualifying for compensation or because it fell outside the qualifying period.

A leading City law firm says that investors will have to think long and hard before turning down any offer of compensation. Robbie Constance, a lawyer at Reynolds Porter Chamberlain, says: “Unlike with the Pensions Review and endowment mortgages, splits investors are finding it hard to prove mis-selling and win compensation.

“Each complaint turns on individual circumstances: the type of product, the timing of the sale and the individual’s portfolio structure and attitude to risk. Unless investors can prove their case on the timing and attitude to risk, it will probably be hard to prove claims individually.”

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