A financial adviser has said it is preferable to invest in peer-to-peer lenders themselves rather than put money into their platform.
Philip Milton, of Devon-based Philip J Milton & Co, said he invested up to £1m from one of his company’s strategies into P2P Global, buying when the shares were worth £10.30 and selling when they were worth £11.93.
He has since been facing questions from his clients about whether they should put their money into a P2P platform.
Mr Milton said the increasing interest in P2P was connected to the dwindling interest people were getting on their savings with banks and building societies.
He said: “The interest is from clients whose money we look after but who have got cash Isas with £20,000 or so in their building society.
“I got a letter from the bank telling me I would get 0.01 per cent interest on my money and some of these platforms offer 5.5 per cent which looks very attractive compared to 0.01 per cent.
“But they are not part of the Financial Services Compensation Scheme.”
Advice to invest in peer-to-peer lending via loan-based crowdfunding platforms.has been covered by the FSCS since April 2016.
Mr Milton said he was worried about the number of failures there might be in the P2P sector.
Earlier this year there were concerns that the UK P2P market would be affected by the Lending Club scandal in the USA.
In April the Lending Club revealed its founder Renaud Laplanche had resigned after he sold $22m (£16.5m) in near-prime loans to an investor against their “express instructions”.
Meanwhile the Financial Conduct Authority has expressed concern that the Innovative Finance Isa - which allows investment into the P2P sector in a tax free wrapper - might be encouraging people who don’t understand crowdfunding to put their money into it.
Mr Milton said he was urging his clients not to take the risk of putting money in P2P.