Hope for bond victims

THE wait for compensation for investors involved in the David Aaron Partnership mis-selling scandal could finally be nearing an end. The Financial Services Compensation Scheme has found the firm in default, which means it will now take over compensation claims from around 2,000 investors mis-sold high-risk precipice bonds by the financial adviser.

The David Aaron Partnership, which also traded as David M Aaron, crashed into receivership in December 2003 over the sale of the bonds. It called in administrators after it realised it could not meet the cost of potential future claims from clients who had bought precipice bonds on the back of its mailshots.

The Financial Services Authority said the group 'actively downplayed' the risks associated with the bonds, which are often taken out by pensioners to provide an income.

FSCS chief executive Loretta Minghella said: 'This is a large, complex default and we recognise that investors have been worried about what is happening. However, we can now consider claims against both firms, so there is light at the end of the tunnel.'

The FSCS said it will take around nine months to process the 2,000 claims. It examines claims in the same way the Ombudsman would. Its payouts are limited to a maximum of £48,000. It will pay all of the first £30,000 of a claim per person and 90% of the next £18,000.

{1}The company had been in business since 1971 and was a family concern, headed by David Aaron (pictured) with his wife and two sons as directors. David Aaron became the first IFA to be banned for life by the FSA, although his two sons are back working in the financial advice industry.

Aaron was one of the most high profile and flamboyant in the financial services industry. He was chauffeured around London's finest restaurants in a White Bentley, owned a £3m flat as well as a house in the Home Counties and was a member at most of the capital's top clubs.

But while Aaron lived the high life, the victims of his mis-selling have been suffering. Most didn't realise their investment would be slashed if the stock market fell, as it did from 2000 onwards.

Like many financial advisers, Aaron used the market boom of the Nineties to change the way he did business. Rather than simply advise, Aaron went for the hard sell of investment products through the use of dubious direct marketing literature, often carrying endorsements from 'independent' experts.

It had a mailing list of around 160,000 potential customers, who it targeted with publications promoting a variety of different products, which it sold both with and without advice.

The FSCS estimates the cost of the compensation claims will be between £10m and £14m.

At the time of the collapse, Aaron said he was 'devastated'. He said: 'I love my clients. I'm sad about how things have turned out.'

Were you mis-sold a precipice bond? Have you won compensation? Tell us about it on our investing message boards.

What are precipice bonds?

Precipice bonds - also known as high income bonds - offered investors a return linked to a stock market index or indices, but their capital was not guaranteed. Hundreds of thousands of these bonds were sold in the late 1990s and early part of this decade.

Crumbling stock markets meant that many of the bonds maturing in recent months have returned only a small proportion of investors' original capital.

Many investors complained to the Ombudsman that they had been under the impression from the literature sent to them by advisers that they were putting their money into a reasonably safe home and they would never have bought the bonds otherwise. Many are still waiting to see if they will receive compensation.

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