IFA firm is banned for life
A FIRM of financial advisers today became the first to be banned for life for for mis-selling products.
The Financial Services Authority said David M Aaron Ltd sold around 7,900 high-risk precipice bonds to customers between January 1998 and June 2003. But it said the group 'actively downplayed' the risks associated with the bonds, which are often taken out by pensioners to provide an income.
The regulator said the firm used quotes and risk ratings from supposedly independent journalists in its promotional material, who had actually been paid for their comments.
It said these comments created the misleading impression that the bonds - which offer high income returns but fail to provide protection against the loss of the invested capital - were low risk and suitable for a cautious consumer.
The statements also included references to guaranteed bonds, and appeared to implicitly link high-risk precipice bonds to ones that were guaranteed.
The FSA said the firm also failed to keep adequate records of the sales process, particularly for assessing customers' attitude to risk, and failed to ensure its staff observed compliance regulations.
Andrew Procter, FSA director of enforcement, said: 'This is one of the most serious cases of mis-selling that the FSA has investigated, and the first time the FSA has banned a firm for mis-selling.
'The problems within David M Aaron were systemic and went to the very heart of the way the firm operated.
'We have ensured that David M Aaron can never again function as a business and we are continuing to consider the roles of the individuals involved with the firm.'
The family-run Milton Keynes firm, which was founded by David Aaron in 1971 and run by him and sons Michael and Stephen, went into administration in January in the face of potentially overwhelming compensation claims for mis-selling, and is now in liquidation.
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 FSA visited the firm in March last year after becoming concerned about the suitability of sales following an industry-wide review of precipice bonds.
The Financial Services Compensation Scheme is currently examining whether it can declare David M Aaron 'in default'. If it does, investors who were mis-sold can apply for compensation of up to £48,000.
No-one from David M Aaron was available to comment.
The watchdog estimates that around 250,000 people have invested a total of £5bn in precipice bonds across the whole industry.
Last year, Lloyds TSB was fined £1.9m over the sale of the product and independent financial adviser Chase de Vere has also been fined over its promotion of the bonds.
