Funds and advisers have been either deluding their customers or deluding themselves

John Tiner, FSA's managing director

The Financial Services Authority, which released its initial review into the �13bn split capital investment trust sector on Thursday, will now launch a formal investigation.

It will look at alleged mis-selling and possible collusion of various fund managers and, if necessary, take regulatory action against firms.

Values of many splits, which are popular with people saving for retirement or school fees, have fallen sharply during the past two years due to stock market falls.

Not as 'safe as houses'

The FSA stressed that the investment trust sector as a whole did not pose particular risks or problems.

"It is still an efficient investment vehicle for retail investors who wish to gain equity market exposure and who understand and accept the associated risks," said the report.

However, John Tiner, FSA managing director said that there were concerns about how the products had been marketed.

Mr Tiner said that marketing literature provided to investors had not adequately disclosed or explained the risks of investing in certain splits - and advisers had not always given their clients a detailed explanation of the risks.

He said: "Seeing these investments promoted as safe as houses, or having more safety features than a Volvo suggests to me that some funds and advisers have been either deluding their customers or deluding themselves.

"Neither is acceptable when dealing with people's savings and security."

Companies let down sector

Consumers who believe that they were mis-sold should seek redress by complaining to the firms responsible, he said.

We will take appropriate action to ensure that the practices that have discredited a small part of the investment sector are stamped out

John Tiner, FSA's managing director

The FSA has so far visited 20 authorised firms to collect data and information on their activities in the splits market.

It still has another 14 visits planned.

The FSA's action will also now focus on identifying regulatory breaches - and suspected "collusive" behaviour between some firms.

The FSA said the practices of some had cast a shadow over the whole industry.

"We will take appropriate action to ensure that the practices that have discredited a small part of the investment sector are stamped out," Mr Tiner said.