A skill that more and more advisers are going to need in the coming months and years is supporting clients with debt — including hidden debt that the client may prefer their friends and families didn’t know about.
Whereas it might once have been possible to assume ‘problem debt’ was largely the preserve of those on benefits or who had faced a sudden financial shock, the soaring cost of living means many more people may find themselves getting behind with bills or turning to ‘easy’ (but often high-cost) credit to tide themselves over.
Surveys suggest even those on high incomes are getting anxious about money, while people on fixed incomes may find double-digit inflation very hard to cope with. So how can you help?
Much more common will be situations where clients on average incomes are nonetheless getting worried about paying their bills and potentially making unwise decisions about borrowing
In my spare time I volunteer with a debt advice charity and probably one of the most important things we do is stand alongside people and help them realise they are not alone.
Something I have seen time and again is what I call ‘Unopened letter syndrome’. When every letter you get is a bill or a demand or a threat, why would you even open your post?
So simply getting clients to share with you all the letters they have received — including the unopened ones — helps you understand the overall picture and draw up a plan.
Maximise income
A second thing we do is try to maximise the client’s income. This may sound obvious to a financial adviser but it is surprising how many people are missing out on help they could be getting.
There are many free debt advice charities to which clients can be referred
With a plethora of schemes designed to help, and more on the way, being aware what help is available and helping people fill in application forms can be a big support to people in trouble.
For example, most of the big energy companies have a charitable arm or other method of providing support to those in real need, sometimes writing off arrears entirely. This can lift a huge burden from the shoulders of your client.
One of the most important things we do at the charity is stand alongside people and help them realise they are not alone
The third thing we are trained to do is minimise expenditure. All too often, clients are paying over the odds for mobile phone and broadband and other household costs, while there are ways to save on bills such as water (move to a meter for a small household?).
In addition, many have got locked in to high-cost credit, meaning their debts go up every month, and rationalising their debts can substantially reduce the cost of servicing them.
A key role of the debt adviser is to liaise with creditors.
Many people in financial need are afraid of creditors and indeed may have had threatening letters from them.
But, when the creditors know they are dealing with a financially trained individual and the person in debt is engaging with their debts and trying to deal with them, sometimes they can be surprisingly accommodating.
When creditors know they are dealing with a financially trained individual, sometimes they can be surprisingly accommodating
This can include, for example, freezing interest on accounts and agreeing affordable repayment plans based on accurate information about household income and expenditure.
There are many free debt advice charities to which clients can be referred, especially if they have got into problem debt with multiple creditors.
In extremis, measures such as a debt relief order or even some form of bankruptcy may be considered if things have got beyond the point where improved budgeting and a bit more time to pay would be sufficient.
Unwise decisions
But much more common in the coming months will be situations where your clients on average incomes are nonetheless getting worried about paying their bills and potentially making unwise decisions about borrowing, which could cost them a lot in the long term.
Getting clients to share all the letters they have received helps you understand the overall picture and make a plan
The more you can make it clear to all your clients that debt is nothing to be ashamed of, and that the key to tackling it is to understand the scale of the problem and devise a plan with a trusted person, the more we will all be able to help people through these unprecedented times.
Steve Webb is a partner at consultants LCP
This article featured in the October 2022 edition of MM. If you would like to subscribe to the monthly magazine, please click here.
Comments