William Kay: Common sense is the best defence if it all looks too good to be true

The formal crucifixion of David Aaron by the Financial Services Authority this week will send a chilling message to other independent financial advisers tempted to cut corners in their hunt for business.

Until this year Mr Aaron ran David M Aaron (Personal Financial Planners) Ltd from Milton Keynes in Buckinghamshire. The FSA has banned the firm for widespread mis-selling of precipice bonds, and may also take action against Mr Aaron and his colleagues.

In uncompromising language that will strike fear in the hearts of others, Andrew Procter, the FSA's director of enforcement, said: "We have ensured that David M Aaron Ltd can never again function as a business and we are continuing to consider the roles of the individuals involved with the firm."

The ban on the firm is largely academic, as it is already in liquidation, but the individuals may face their own punishment in the shape of a fine or suspension. As it is, the fact that they are linked to a banned organisation means that they will have to re-apply to the FSA if they want to work elsewhere in the industry.

They are going to have an uphill struggle if they do want to do that. The FSA is going to take some persuading before letting them back in, and any new employer is going to have to contend with a barrage of rough publicity harking back to their time with Aaron.

While Aaron was the most prominent seller of precipice bonds, it was not alone, and I understand that the FSA is still looking at others to see if they merit similar punishment. But in this case the market has been as important as the regulator in rooting out this scandal.

When these bonds were invented, using futures contracts to alter the relationship of risk to reward, the marketing departments jumped at the chance to advertise returns way above the market rate. The trouble was, that meant creating the danger that investors would lose everything - as many did.

Providers have got the message. As Barclays showed this week with its new Woolwich Protected FTSE Hedge Plan, they realised that the less sophisticated investors they were chasing wanted, above all, the knowledge that their money was safe, even if it meant sacrificing some profit. So the Woolwich Plan gives investors only two-thirds of any gain.

No regulator can pick up scandals before they happen, so we are only talking about how quickly they will swing into action. Arguably, it took too long to latch on to precipice bonds, claiming that it was only its fine of Scottish Widows last year that got them on to it. The FSA admits it has learnt lessons from the Aaron episode. It has stepped up its monitoring of financial consumer products and will take complaints on 08457 300 168.

But the best defence against the cowboys undoubtedly lies in the public's own hands. That means taking the time and trouble to inform and educate yourself to ask the questions that will set alarm bells ringing: if it looks too good to be true, it probably is.

Meanwhile, those wronged by Aaron should write first to KPMG Corporate Recovery at 8 Salisbury Square, London EC4Y 8BB. Ultimately, though, redress will rest with the Financial Services Compensation Scheme.

* The rally I predicted in the gold price a month ago duly materialised, taking it up from $390 an ounce to $410 at one stage, before eventually taking a breather at $406.

So far, so good: but, as ever, the question is where it goes from here. While it is never wrong to take a profit, my hunch is that the gold price has further to go, and investors should think in terms of holding on until at least the end of the year.

Uncertainties continue to dog Iraq, despite the installation of a locally based government. And while George Bush and John Kerry run one another so close in the US Presidential election race, many investors will prefer to hug a gold bar than a share certificate.

Nothing but a temporary lull in the price-boom

Do not be fooled by this week's headlines proclaiming the end of the house-price boom. While Nationwide Building Society and Halifax came out with downbeat figures for housing prices during August, I sense there may still be some life in the boom yet.

The trouble is, as happens with all markets where there has been a prolonged rise, a queue develops of doomsters praying for the crash. We know it's going to happen, the mantra goes, so let's get it over with.

We then find that every wobble is greeted by a growing chorus of "boom over". But the bad news for the Cassandras out there is that there is an even greater number of people with a vested interest in higher prices or in getting on the housing ladder.

It is worth bearing in mind that August is an odd month. Many people are either on holiday, planning holidays or looking back on holidays: with a few exceptions, house-hunting is not top of the priority list.

But the publication of the Nationwide survey figures, and others such as Halifax, have their own impact on the market. Would-be sellers who can postpone a move are more inclined to take their property off the market if they sense that prices are softening. And first-time buyers itching to get in on the market may be tempted in rather than wait any longer.

Depending on whether - and when - we see further rises in interest rates, I predict that we will see house prices going up again by the end of the year.

w.kay@independent.co.uk

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