Are Trust Deed Companies Offering the Correct Advice?

27th October 2010

The 2010 Trust Deed Survey asked a very simple debt advice question:

“Have you received advice (from any source) that you now consider to be misleading or incorrect?

We were shocked by the response as 50% of respondents said that they had received what they now believe to be misleading or incorrect advice.

In this article we are going to analyse just how and why this is the case. In doing so we are also going to make some suggestions we believe will help readers to identify which sources of advice are trustworthy (and which they should choose to ignore).

Poorly Trained Debt Advisers

To provide advice on a mortgage requires a professional qualification. To advise on an investment, or insurance, requires a professional qualification. In fact almost every area of financial guidance requires a professional qualification; apart from debt advice.

The Office of Fair Trading recently concluded that, “standards of knowledge amongst frontline staff at debt advisory operations of all types throughout the UK, is often very poor”. This can obviously lead to incorrect or misleading advice being provided.

Professional qualifications do exist both for providing trust deed advice (insolvency qualifications) and general debt advice (the relatively new CertDR qualification). However, many companies have simply not chosen to enrol their frontline staff on the course. Some major debt solutions companies may have effective internal training procedures and some smaller (perhaps owner-managed) quality operations might provide excellent internal training. Whichever way you look at it however, there are a lot of debt advisers currently providing a lot of debt advice without the knowledge to do so properly.

Suggestion: We recommend, when speaking with a debt adviser (of any type), you simply and politely ask: “What qualifications do you have in providing debt advice and what courses have you attended”? If you do not immediately receive a concise and credible answer we recommend you terminate the call or appointment. After all, would you take investment advice from someone who had no proper training? Without full training and/or qualifications the adviser simply isn’t in a position to properly advise.

Selling or Advising?

To illustrate how “advising” can actually be “selling” here is a trick currently in use by some unscrupulous debt advisers and debt advice companies:

You call a debt company and are pleased to find you qualify for a debt management plan. It’s going to take eight years to repay the debts but at least you can get on with your life again. You get the debt management plan up and running. A couple of months down the line you receive a call from the debt management company with more good news. “We’re pleased to be able to tell you that you now qualify for a trust deed. This means you can be debt free in three years”: fantastic news of course. The debt management plan was going well, but three years of repayments sounds much better for you and your family than eight long years.

Let’s turn this scenario around and take a look at it from the debt company’s perspective. You sign up to a debt management plan and make a few payments. They’ll probably keep the first two payments as an upfront fee. Once they have that money they will be charging a smaller fee out of your contribution each month, unless of course you qualify for a trust deed. If you do they can sell their work on your case to a trust deed company for a pretty significant sum. If you were paying £300 per month they might take £600 in fees from your first two payments and then perhaps receive another £700 from the trust deed company. Excellent news for them. They’ve made £1300. If there are two of you they may have made £2000.

If you had been offered a protected trust deed in the first instance would you have taken it? A lot of people would, and for very good reason. Did you know there is an alternative to a debt management plan in Scotland called the Debt Arrangement Scheme?

During the time you were in the debt management plan you’ve been exposed to legal debt recovery actions from your creditors, you may well have had more interest added to your debts and you have paid a considerable extra sum in fees. Your fee expense and legal risk would have been much less in a trust deed or a DAS arrangement. There would have been no more interest and you would have been clear of your debt far earlier.

This is just one example of how a lot of debt “advising” is simply companies colluding to make as much money as they can.

Suggestion 1: Having discussed your circumstances with an adviser, simply ask: “please tell me all of the options available to me based upon my financial circumstances”. Take a note of the answer. Then contact another debt adviser and ask the same question (and another to be even more certain). Compare the lists. You will be able to make a judgment about which adviser knows what they are talking about, which is honest, and which is trying to see the situation from your perspective rather than their own.

Suggestion 2: If a debt adviser insists on telling you all about a particular solution before they fully understand your circumstances, end the call or appointment immediately. They are trying to push you towards a solution which suits them without trying to find out if it suits you.

Get It In Writing

A common problem on our trust deed forum is companies who make promises they can’t keep. This can have a devastating impact on individuals and their families.

In terms of trust deeds this most commonly occurs when people are told their house will be safe, only to find out later they have to raise a huge lump-sum to bring the trust deed to an end. In the current mortgage market this often means the house has to be sold.

Another factor to consider is what would happen to any extra money you receive. What will happen if you decide to work hard and earn a bonus? What happens if you’re working extra hours to earn overtime? Do you keep any of it?

Of course reputable trust deed companies and advisers would never deliberately misinform or mislead anyone. However, it does happen and people should protect themselves.

A particular danger exists where some trust deed introducers (who sell your trust deed case on to a real trust deed company) will tell you almost anything to ensure that you proceed. When satisfied with the answers you receive from the introducer, you don’t choose to check these points again with the protected trust deed company you have been sent to. You then discover the information you were initially given is incorrect and you are legally obliged to sell the home or find a large sum of money elsewhere to avoid such a sale. Or you work hard for a bonus or overtime but have to pay the full amount over to your trust deed.

Suggestion: If you decide to go ahead with a trust deed do not sign the document until all the major points have been confirmed to you, in writing, by the trust deed company itself. This should include information about how your house or car will be affected. If you ever receive work bonus payments, or overtime, you should have written confirmation on how much you can keep and how much has to be paid into the trust deed. Think about everything that is important to you, based upon your circumstances, and get all the details in writing before you sign.

We hope this article helps people to be able to identify and avoid untrained debt advisors handing out poor information, as well as dishonest debt advisers trying to earn the maximum possible profit from your situation.

The next article based upon the survey results will look more specifically at how respondents rated the advice they received from trust deed websites.

For further Trust Deed news and information, please visit our forum where we have a wealth of free advice from experienced industry experts.

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