When seeking advice on how to deal with financial matters it is very important for consumers to consider an advisor who can be unbiased and impartial. If that is not possible then it is important to at least understand when a conflict of interest or bias lies, and how it may affect the advice given to you from and advisor. As long as a consumer understands this they can ask better questions and make more informed decision when taking advice from a financial advisor.
When it comes to debt relief companies not all services are created equal. It is very confusing for consumers trying to research debt relief companies online as most of the companies advertise using very similar advertisements. They appear and sound the same on the various websites, yet their services vary substantially in how they get paid and from who, and what bias or conflicts of interest they may have. So how is a consumer to tell them apart? To start with they could at least understand the advisors (or company’s) underling motivation.
So here are some important things to consider: How is the advisor getting paid?
- Commission – Some financial advisors are paid a commission from the product they sell.. It is certainly ok for an advisor to receive a commission, but a consumer should at least consider that this advisor who receives a “fee per product” may be inclined to present products that make them more commission than other products. And again, this is ok if it is explained or understood. A good advisor should disclose how they are paid, and from who, and any potential conflict the exist, and ensure the consumer understands the advantages and disadvantages of each product they promote.
- Flat fee for service – Some advisors charge a flat fee or an hourly or per job fee for the advice they give, so they may be less inclined to promote a less beneficial product purely because their income is not tied more to one product over another. This can be a good way to receive more impartial advice. Anytime advice is free, a consumer must ask how then the advisor is able to make a living. All services offering debt advice do receive compensation so it is important to understand how.
- Straight wage – Some advisors are a salaried employee and makes no commission; in this case then their advice is likely biased only to their employer so they may promote products that benefit their own company more, but no guarantee. It is just something to consider.
All of these types of fee structures exist in the financial advice/planning industry and each one can cause a different bias or conflict. So please consider asking any advisor the right questions to ensure you understand their underlying financial motivation.
Where it gets even more confusing in the debt help/relief industry is the fact that some services that advertise to be non-profit receive funding from banks and creditors as well as collect fees from their clients. Non-profits are required to disclose the sources of funding, so if you dig deep enough you will find they receive funding from sources that may put them at a conflict of interest to the advice they are giving. Do you feel a non-profit should received funding from businesses they are working for and then advertise that they are out to help consumers?
Lets consider a similar example in a different industry like health. What if you went to a “non-profit” health company that offered health advice and the advice was free; but you found out later that the non-profit free advice was in fact funded by big commercial drug companies. How would you feel about the “free health advice” you just received from them? Would you feel that the advice is fair and non-biased? Not likely, you would be upset that they had not at least disclosed this information to you when giving you advice.
This real scenario exists in the debt relief (debt consolidating/debt restructuring) industry even to this day. A similar conflict of interested exists where some Credit Counselling companies who advertise that they are a “non-profit”, are in fact getting funding directly from the banks who lent the money and helped create the debt problem for the consumer in the first place. Do you as a consumer feel this advice is unbiased when the person advising you might be getting paid by the same company who caused the debt problem? Do you feel it is fair that they say they are non-profit and impartial when they in fact help the banks recover 100% of the money from you and get paid for doing so by both the bank and you?. These types of debt programs generally cost the client more than they owe once they pay back all the debt plus the fee the agency charges. More on Credit Counselling here.
Another potential conflict situation is clients who see a Trustee for a Bankruptcy or Consumer Proposal to deal with their debt. The trustee (aka LIT Licenced Insolvency Trustee) will get a fee based on how much they collect off the person in debt. This to many industry experts puts the Trustee’s role in a conflict of interest situation with the debtor. Trustees have statutory duties under federal insolvency law and their role is often described as a “referee” by protecting the interests of the consumer and his or her creditors in a consumer proposal. The trustee’s statutory duties owed to both creditors and the administration of the consumer proposal process prevent a trustee from acting as an advocate for an individual making a consumer proposal.
Here is a recent article by CBC news that discusses this conflict situation. The article is more focused on the problem of seniors carrying more debt than ever, but it goes into details about problems that exist when these seniors go to get advice on debt relief or debt consolidation.
Read this Article as per @StatCan_eng .@cbcnews @onthemoneyCBC @rcarrick
As this author points out many of the debt services offered in Canada are offered by companies who sit in a “conflict of interest” situation as they have a duty to creditors (Banks) and therefore are not giving unbiased advice to consumers. Do you know that @4Pillarsdebtvictoria is here to help with impartial advice? We work for you and only you, we do not get funding from any banks. We are one of the very few companies that represent you and not your creditors (banks).
So, this is why it is always important when receiving advice on any type of service to ask yourself some serious questions, such as: Is this advice I am receiving biased toward someone or something? How is this advisor getting paid? Who is paying them, how much, and why? These questions will help consumers fully assess and understand potential conflicts of interest and the motivation behind any advice given. A conflict of interest isn’t always a deal breaker as to who you should work with, but it certainly needs to be fully understood so an informed decision can be made.
In the end, all working people or businesses essentially work for whoever or whatever is paying us, and we all have some sort of bias toward what we know and work within. This is not untimely a problem, it is only a problem if we as advisors hide who our funding is from and how we are motivated and paid. So, if we as individuals know that we ourselves can be biased, we need to always keep this in mind when relieving advice from others.
What sets 4 Pillars apart is that we receive zero funding from banks or credit agencies when we give advice on how to restructure a person’s debt troubles, and we work 100% only for those people we help. Our motivation is to get the best deal (settlement or savings) possible for our clients so that they are happy with our work and recommend us to others. We have a very high standard of service with our “4 Pillars Promise” and have a 97% success rate with helping our clients achieve long term freedom from their debt and have been helping Canadians break free from their debt for over 15 years. Call today for a free consultation.