Don't believe the hype

JUST three months after Money Mail turned the spotlight on David Aaron Partnership's selling of high-risk precipice bonds, the independent financial adviser (IFA) has been forced into administration.

This sordid saga drags back to when David Aaron began extolling these bonds via direct mailings to his clients. The sales literature, which owed more to the tactics of timeshare salesmen than to professional advice, hyped the benefits of the bonds, played down the risks and urged swift investment.

Personal finance 'experts' were wheeled out to give their views on the 'low risk' and 'secure returns'. But was their independence somewhat compromised by the fact that some had at one time or other been paid by David Aaron Partnership?

In fact, as Money Mail has pointed out repeatedly over the past four years, precipice bonds can be extremely high-risk investments. This is because they may link your money to just a small basket of shares and there can be no limit to the potential downside if shares fall. With some, your money can disappear at two to three times the rate at which share prices fall. Now both David Aaron Partnership and its clients have paid the price - although I suspect that people who followed Mr Aaron's advice by going into precipice bonds will end up rather poorer than he will.

Any investors who believe they have a claim for mis-selling must now wait until the firm is declared in default by the Financial Services Compensation Scheme - and that could be months away.

There are clear lessons to be drawn from this tale. Investors must learn to treat any mailshot with extreme scepticism. It's your money, so take some responsibility and read all the small print before sending off a cheque.

If you don't understand what you're getting into, either be prepared to pay for advice or stick with a building society account.

The Financial Services Authority, which polices advisers, must investigate how and whether it can tighten up the rules for direct marketing literature.

Financial advisers must also look at their role. They constantly demand to be treated as professionals, yet how can they expect to be trusted and respected when some of their number behave like shady salesmen, sending out dubious and misleading mailshots?

David Aaron Partnership's behaviour was unprofessional, ill-considered and seedy. Now the industry and its regulator must make sure the same thing can never happen again.

AS the endowment reporting season comes around again, many homeowners will no doubt be tempted to follow the example of small children who want to avoid hearing something unpleasant and put their fingers in their ears while chanting 'La la la'.

Instead, they should follow the Boy Scouts and be prepared. Endowment payouts will continue to fall for the foreseeable future and there is a very good chance that most will not meet the mortgage they were supposed to cover.

So take action now. Increasing the repayments on your mortgage will be far less painful than ignoring the problem.