IFAs who referred clients to advisory service debtDr fear they could be targeted for compensation after the firm went bust last night with no details available about the whereabouts of client money.
debtDr, which had about 60 debt consultants nationwide as well as a network of adviser introducers, charged clients to negotiate more manageable terms for their debts.
Clients would then transfer full and final settlement money to the service, which it agreed to keep in separate client accounts to pay out to creditors.
Some advisers and mortgage brokers, who had seen work dry up since the property crash, had opened up a side business in referring bankruptcy cases to the Somerset-based service in exchange for commission.
Jeremy Hockley, the firm's chief executive, had also appeared on the BBC and Radio Four offering advice to indebted consumers in the wake of the financial crisis.
But in an e-mail seen by IFAonline sent at 4.55pm last night, Hockley said Hermes Financial Solutions, trading as debtDr, had ceased trading with immediate effect.
He said he had been trying to secure a rescue package but this had failed.
Hermes' Equifax Analyst report notes the difference on the profit and loss account shown on the balance sheet is £306,538,which suggests the company made a post tax loss of the same amount.
There are intangible fixed assets of £1 and net current liabilities of £519,608 and accumulated losses of £489,845.
Elsewhere in the e-mail, Hockley said: "I have informed Trading Standards and will be co-operating fully with them and the Office of Fair Trading in their investigations."
But he gives no details of the whereabouts of client money or outstanding commission to advisers who referred them to the firm, although Hockley says he will endeavor to answer questions in due course.
Advisers also say they have been cut off from the debtDr's internal e-mail service which Hockley used to communicate with them, leaving them in the dark about further developments at the firm.
They are now worried the clients they introduced to the service could make claims against them for any losses.
Under normal circumstances, client money would sit in ringfenced accounts protected from any liquidation proceedings.
However, some IFAs are concerned about the security of client money after an e-mail from Hockley two months ago in which he said he needed to move all client funds into a single account to avoid money laundering rules.
One IFA who did not want to be named said she had previously referred some of her bankruptcy clients to debtDr, but distanced herself from the service three months ago after concerns about practices at the firm.
She said it is time for the debt industry to be properly regulated.
"Whilst the FSA have spent millions over regulating those in credit, it is my opinion that the OFT have ignored the plight of those in debt.
‘I am concerned about the reputation of the financial services industry. It is important that the public know that their interests are protected by those that genuinely have their interests at heart.
"The reputable majority should not have their reputations undermined by the disreputable minority."
The debtDr could not be reached for comment at the time of writing.
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