Who advises consumers about money issues?
Published: 4 November 2014 | Author: Bernard Clarke
The language of financial services is full of bear-traps, and never more so than on the use of the term "advice."
Your mates in the pub might talk about "financial advice" in a generic sense – and some, perish the thought, might even try to give it! But they probably do not mean what the Financial Conduct Authority (FCA) means – which is, broadly speaking, a product purchase recommendation, subject to a highly prescribed suite of selling rules. This can only be done by qualified people within a regulated set of activities. In any case, in the mortgage world you do not necessarily get advice from a financial adviser in the FCA sense – although in most cases you will get regulated mortgage advice. Clear? Good!
The same potential for confusion exists over the term "money advice.” Before the Money Advice Service (MAS) came into existence, the term was a sort of euphemistic generic descriptor of debt counselling – often on an emergency basis. The birth of the MAS changed things a bit because the job of that organisation is not primarily debt counselling, but generic consumer education and signposting to help people gain the information and guidance they need to make good financial decisions (rather than specific choices between competing products).
So, it is perhaps no wonder that it can be difficult to understand the landscape of who offers what kind of advice or help to mortgage customers who may need it.
We therefore thought it was time to try to clear things up a bit, and outline some of the key organisations involved in giving information/guidance/advice (but not "financial advice,” or "mortgage advice") to consumers. This is especially important as lenders seek to work collaboratively with – and help fund – many of these organisations to ensure that their customers are well-served for the guidance they need.
We always recommend that anyone suffering from mortgage payment problems should talk to their lender at the earliest opportunity. However, lenders also recognise that many customers benefit from the kind of advice that comes not from a product provider or from a salesman, but from an holistic adviser who can help the customer to consider their overall income, outgoings, financial commitments, tax, benefits, and budgeting in the round.
An outline of the money advice sector
Money advice for people with debt problems has been available in the UK for many years.
Mortgage lenders began collaborating with money advice agencies (often in the charitable sector) during the housing market recession of the early 1990s. Since then, however, both the number and the type of organisations delivering debt counselling and/or holistic money advice to consumers have changed dramatically.
Nowadays, from the consumer perspective, services fall into two categories:
- Those which are free to use (including well-known national charities such as Shelter and Citizens Advice, specialist organisations such as StepChange, and semi-commercial organisations offering debt management plans, such as Payplan. These organisations are often part-funded through contributions from lenders in return for their work in negotiating manageable plans for consumers across a range of different debts.
- Those that charge fees to customers in return for negotiating with creditors and setting up debt management plans. The representative body for a number of these fee-charging organisations is the Debt Managers Standards Association (DeMSA), whose members commit to a code of practice.
From a lender's perspective, the approaches adopted by fee-charging companies may be similar to those adopted by free-to-consumer services (and the lender does not generally make a contribution to the company). However, from the consumer's perspective, fee-paying companies naturally reduce the level of contribution available to reduce the consumer's debts, so it may take longer for the customer's situation to improve – which is why the Money Advice Service says: "You don't need to pay for debt advice" and only signposts free advice services that meet its quality standards.
Do you need to be regulated to give advice to people with debt problems?
Financial advisers are authorised by the FCA. Authorisation is required for advisers who work for lenders or other companies, as well as those who work for themselves. Customers can check whether an adviser or the firm they work for is properly regulated by referring to the FCA register.
Advisers working for Citizens Advice, whether paid or as volunteers, have to follow the organisation’s national training programme in general advice, as well as undertaking specialist training in money advice. The Institute of Credit Management and the Institute of Money Advice (IMA) also run courses, and those who complete the Certificate in Money Advice Practice (CMAP) become accredited members of the IMA.
Who uses money advice services?
Problems associated with debts can affect a wide range of people. The StepChange Debt Charity, for example, says that half of those who seek help are in work. Four-fifths (80% are of working age (between 25 and 59), almost half (43%) have children, and almost one-third (31%) have a mortgage.
The charity says that many people with a mortgage also have high levels of unsecured debt. Among those it helps, people with a mortgage have unsecured debts averaging almost £30,000, while those without a mortgage typically have debt levels that are nearer to £20,000. StepChange says that rising living costs are putting pressure on households, but those in difficulty are likely to have undergone an income shock or some other major “life event” change.
What do lenders get out of money advice services?
- Most people who use services like this don't have a mortgage but…
- …Of those who do have a mortgage, most have multiple debts – so the mortgage is not their only financial problem. In these cases, advisers who can help them holistically are more likely to reach sustainable solutions for borrowers (rather than individual creditors all setting up arrangements that, when taken together, might not prove sustainable). Mortgages are a priority debt, and this is reflected by money advisers.
- Many money advisers will use the common financial statement. This was born out of a commitment to create a uniform approach to how financial statements are prepared and to encourage consistent responses from creditors. The aim is that when someone is faced with a difficult financial situation, it is possible to find a fair resolution without undue delay.
- Many lenders provide funding to help ensure consumers continue to have access to free, independent and impartial debt advice. Barclays, for example, says on its website that it has supported the Money Advice Trust (MAT) since it was set up in 1991, and has provided over £5 million towards National Debtline, Business Debtline and Citizens Advice since 2007. Nationwide Building Society, meanwhile, also funds the MAT’s innovation grants programme "to further knowledge and reach during difficult times."
- In dealing with individual problems, lenders will usually liaise with money advisers who have the borrower's authority to negotiate on their behalf. Many firms, as shown by the examples above, also help fund money advice services. And some – on the basis that prevention is better than cure – are working innovatively to offer “money make-overs” and similar services that may even help stop customers getting into serious difficulty in the first place.
Who are the main players in the free-to-consumer space, and what do they do?
- Citizens Advice offers confidential, impartial and independent advice on a range of issues, including problems with debt. It can provide advice face-to-face or over the phone, and can arrange home visits and offer help by email.
- The National Debtline also offers free advice and publishes a range of fact sheets, including those providing help with payments, arrears and shortfalls. It offers advice on the options available, negotiation with lenders and mortgage rescue.
- Another organisation offering advice on dealing with mortgage arrears and negotiating with lenders is the housing and homelessness charity Shelter. It also guides borrowers towards other sources of appropriate advice, and offers help in dealing with court action for possession.
- The StepChange Debt Charity, which was formerly the Consumer Credit Counselling Service, says it has helped more than two million people over 20 years with a range of debt problems. It offers free advice, tailored to the circumstances of the borrower, on a range of debts, including mortgages.
- Also offering free advice for two decades, PayPlan has developed a wide range of long-term solutions to help people manage debts, including mortgages.
- The Debt Counsellors is a newer charity, but is committed to providing free, independent, confidential and impartial advice. Its services also include helping borrowers devise free debt management plans.
Who are the main umbrella bodies and what do they do?
- Advice UK, which was formed in 1979, says it is the largest support network for free, independent advice centres. As a national organisation and a member of the Advice Services Alliance, it seeks to work with the government and others on debt and advice policy.
- The Association of Professional Debt Solution Intermediaries (APDSI) helps intermediaries and brokers offer advice while complying with consumer credit and debt advice regulation.
- The Debt Resolution Forum sets out to promote professional standards for resolving debtors’ financial problems. It says that its membership standard is independently monitored and is accredited against the Money Advice Trust’s quality framework.
- The National Homelessness Advice Service works with local councils, voluntary advice agencies and Citizens Advice throughout England. It aims to prevent homelessness and improve housing by giving free expert advice, training and support to those working in the front line.
- Set up in 2000, the Debt Managers Standards Association requires its members to show that they comply with standards set out in its code of conduct. It seeks to encourage debt management companies to provide services "of the highest standards" and in which the public and credit industry can have confidence.
- The Money Advice Liaison Group is a forum for communication, best practice, understanding and professionalism in organisations with an interest in personal credit and debt. It encourages regional forums with similar aims and objectives throughout the UK.
The road to widespread financial capability is a long haul. The introduction of personal finance to the school curriculum is supported by the Personal Finance Education Group, but is not yet being universally delivered. So, services that can help people understand financial matters and deal with problems if they do occur will be valuable for some time to come.
Research we published recently in conjunction with YouGov contained some encouraging findings on the capacity of borrowers to deal with higher interest rates and their coping strategies for rising mortgage costs. But while people may have a reasonable understanding of their options, good advice could make the difference in enabling people to cope.
Although interest rates are expected to begin rising next year, the Bank of England has indicated that it will assess carefully the impact on household budgets and introduce higher rates in a series of “baby steps.” Borrowers can also help themselves by planning ahead, and it may be that pre-emptive services of the kind offered by Payplan and others may help in nipping problems in the bud or even before they occur.
Lenders are showing enlightened self-interest in working with – and helping to fund – agencies that can help those with multiple debts. But it is also important to understand that firms cannot necessarily solve the whole problem for people in these circumstances.