Bridging the debt gap

Sunday 3rd January 2010

By Andy Moody, managing director, TCF Debt Solutions

This might be stating the obvious, but advisers who have an existing client bank of over two years old will have customers who are in debt. Whether those clients came to the party for mortgages, insurance, investment or pensions, it is a fair bet that some will be under an avalanche of debt and not know what to do about it.

In my experience, I have come across many intermediaries who believe that until the recession eases there is little point contacting old clients. However, many with whom we are now working have discovered that a simple catch up call can provide opportunities to help those clients handle their debt position very effectively, maintain the client relationship into the next upswing and derive an income as well.

For those advisers who are actively seeking new opportunities, it is frustrating to turn away customers for whom you have set up secured loans or remortgages for debt consolidation in the past, but for whom you can no longer offer the prospect of a new lending solution.  But how does the intermediary go about finding a source of good advice on debt solutions, which he can be assured is in tune with his efforts to meet his obligations under the Treating Customers Fairly initiative? If he has found such a source and not simply handed out the telephone number of the nearest Citizen’s Advice Bureau then that is great. But what I want to do is illustrate the factors to look for when assessing a new partner.

What do these firms offer advice on? Many companies only deal in debt management plans (DMPs) because they are easier to set up and require less specialist knowledge. DMPs are a very good way of helping people but it is not the only way and in certain cases, particularly those with larger debts in excess of GBP 15000, Individual Voluntary Arrangements (IVAs) might be the answer.

How much do they charge? Be wary if it is not transparently obvious how much of the money paid over by the client to pay his debt down is actually going into ‘administration’ (including the fee being paid to you) before the balance goes to creditors. One of the biggest criticisms levelled at debt solution companies is that some take a disproportionate fee for their services and any adviser seeking a debt solutions partner needs to satisfy himself that the deal is fair.

Also, a good intermediary wouldn’t recommend a lender who was unable to complete a deal and had a poor record of customer service. Similarly, it is important to establish that the choice of partner is successfully managing DMPs and IVAs. Unfortunately, many are set up incorrectly and clients are then unable to maintain payments which means that they are in a worse position than before they started.

Whichever firm is chosen, intermediaries must ask these basic questions because it is hard enough navigating the seas of compliance.

Asking the right questions before making a choice will make the difference between opening up another income stream, maintaining a relationship while helping clients out of a debt hole and the possibility of being held responsible for the wrong course of action being chosen for your client.

Andy Moody is Managing Director of TCF Debt Solutions and has spent his career in financial services, with particular emphasis on businesses working exclusively with an intermediary focus.