I t is a long way from the heady days of the mid to late 1990s when David Aaron was one of the most sought after, successful financial advisers in the country.
Last week, the FSA handed David M Aaron (Personal Financial Planners) Ltd a life ban for the widespread misselling of structured products – the first time that the FSA has banned a firm for misselling and it is possible that the action could end Aaron's career in financial services.
Over the years between January 1998 and June 2003, it is estimated that Aaron's firm sold structured bonds to nearly 8,000 customers, making it one of the biggest sellers of structured products.
The company stopped trading at the end of last year and went his firm into voluntary administration after receiving the first of a considerable amount of claims against it and just weeks after, plans to sell the business fell through.
But Aaron is not alone – the FOS is still receiving 500 complaints about structured products each month – and his recent prominence in the financial pages is due largely to his earlier success.
Aaron set up the David Aaron Partnership in Woburn Sands 32 years ago and at its peak had 50 advisers and support staff, with more than 150,000 clients.
During the late 1990s, when the bulk of the structured products were sold, Aaron had the blessing of many financial journalists who were happy to help increase his profile within the national press.
He was famous for his extravagant lifestyle – a mansion just outside Milton Keynes, an expensive flat in London, chauffeur-driven luxury cars and lunching with journalists in exclusive restaurants. His friends included the rich and titled and he had a penchant for the high life, with membership at some of London's most exclusive clubs – so it was little wonder that when the tide began to turn, Aaron was portrayed as improvident and excessive.
The flak flew in Aaron's direction for three main reasons – the labelling of structured products as low-risk investment,the use of endorsements from journalists and the voluntary insolvency of the firm late last year.
But Aaron was not the only one identifying structured products as low risk as it was an widely accepted practice, as is journalists opinions for “third-party” endorsement. As for dumping liabilities via voluntary insolvency, the fact remains the FSA and the Office of Fair Trading have yet to close this gaping loophole. Until they do, that is, if they can, other advisers could also choose this route.
The cracks began to show in March 2003 when Aaron disclosed that the FSA had come to his office to discuss his sales of structured products but even at this stage he said he had never had a problem with a product.
At the time, he said: “The FSA asked us for 30 files and raised questions and said they would like to come and see us and talk about it. Everyone is waiting to hear from them, whoever they have seen, as they have got to pull so much together.”
He said the company had “turned away more of these products than it had recommended” and had “been very careful. It was only there for some investors to invest some money. We never said put all your money in – just a small proportion of your portfolio.”
When contacted by journalists after placing his firm in insolvency, he said: “'I am devastated. I love my clients. I am sad about how things have turned out.”
Aaron was a mainstay in the personal finance pages since the early 1990s when he began issuing a series of regular investment reports on topics from with profits surveys to tax planning and guides to venture capital that were immediately snatched up by financial journalists for their ease of reading and comprehensive information.
Aaron was always one for judging the expected needs of potential investors, authoring information packs such as Planning for a Labour Government in 1996 and reports on how to invest in the tech market or small companies. More times than not, he got it right and even up until late 2003 Aaron's guides to tax-efficient solutions for financial needs and objectives were still being recommended by journalists.
But it was the market boom of the late 1990s where he saw the opportunity to use these guides to a greater effect, changing his advice-driven business to the sales of investment products. And this was most apparent in his promotion of structured products, which saw great success in the rising stockmarkets of the late 1990s.
From 2000 to 2003, Aaron's business in this area continued to fare well, with deals with issuers to sell direct to the public, a strategy followed by other advisers but executed adeptly by Aaron. It was not until the March 2003 visit that there were any signs that something was wrong at the firm but it has since been a rapid downhill course since then. But at this late stage, Aaron was an easy target for the FSA, whose role in this chapter needs further considered thought.
For better or for worse, the FSA seemed content to sit on the sidelines with Aaron until the very last minute rather than act as a referee in the middle of the action. Might it have been better for it to intervene earlier and try to help the business stay afloat to the benefit of Aaron's thousands of clients or shut the business down sooner and under conditions more acceptable? Moot points in the case of David Aaron but pertinent for the health of the industry.