FSCS clears the way for Aaron investors to win compensation

The Financial Services Compensation Scheme (FSCS) offered hope to 2,000 beleaguered investors yesterday, when it declared the David Aaron Partnership and David M Aaron (Personal Financial Planners) Limited in default.

The Financial Services Compensation Scheme (FSCS) offered hope to 2,000 beleaguered investors yesterday, when it declared the David Aaron Partnership and David M Aaron (Personal Financial Planners) Limited in default.

This means that the industry financed FSCS formally recognises that the Aaron firms are unable to meet compensation claims, paving the way for the scheme to pay. In total 57 advisory firms were declared in default. As long as the firms were officially regarded as not being in default, no compensation could be paid, leaving clients empty-handed.

The Aaron firms were part of a high-profile independent financial adviser group which went into administration a year ago when Mr Aaron, the majority shareholder in the business, realised that he could not meet claims for losses from allegedly mis-sold "precipice" bonds. These were investments tied to the fate of the FTSE 100 and other stock market indices here and abroad. When those markets collapsed after the dot.com bubble burst in 2000, the prices of many of these bonds dropped so dramatically in value that they were seen as falling off a cliff, hence the allusion to a precipice. Some became worthless.

At the peak of the business Mr Aaron entertained contacts at the best restaurants in London and took a huge salary and interest-free loans from his companies. He lived in a £3m house near Milton Keynes, Buckinghamshire, and ran a fleet of luxury cars. Aaron clients are estimated to have claims totalling between £10m and £14m, but the eventual bill will be limited by the FSCS maximum payment of £48,000.

"This is a large, complex default and we recognise that investors have been worried about what is happening," Loretta Minghella, the chief executive of FSCS, said. "However, we can now consider claims against both firms, so there is light at the end of the tunnel. Because of the large number of potential claims, the processing will take some time."

In September the Financial Services Authority banned David M Aaron Ltd from conducting retail business for what it said was "one of the most serious cases of mis-selling the FSA has investigated".

Claims will be processed in order of receipt. Investors facing immediate hardship will receive priority. Consumers who believe they may have a claim should contact FSCS on 020 7892 7300 or enquiries@fscs.org.uk, or visit www.fscs.org.uk.