Row over 'low-risk' trusts

FUND managers and independent financial advisers face condemnation by the City regulator for selling split-capital investment trusts as 'low risk'.

The Financial Services Authority warned about selling split trusts two years ago. Now, after an investigation into a so-called 'magic circle' of managers who invested in each other's funds as well as their own, it is also likely to raise questions over the independence of trust directors.

Thousands of investors lost millions of pounds as share prices in these investment firms plummeted. Many of the trusts invested in a small range of similar funds run by an even narrower group of managers, including Aberdeen Asset Management, Exeter Fund Managers and Gartmore. The crossinvestment caused extra volatility as stock markets fell.

The regulator's report is due to be published on May 16.