UK plc's uneasy relationship with debt

Yesterday, I participated in a BBC Radio Wales panel discussion on the topic of debt and poverty in Wales. Around the table were representatives of various charities as well as from bodies which specialise in helping people out of debt. The programme was prompted by the realisation that what are euphemistically termed ‘debt management’ issues have attained epidemic proportions.

 

Apart from the usual challenge of having to deal with unexpected technical questions, for me the real challenge arising from this experience was the realisation that, for a very large part of the population, their relationship with money is at best an uneasy one. I suspect that many IFAs will share the view that the UK’s dysfunctional approach towards financial matters owes its origins to a lack of education early on combined with negative lessons deriving from our parents’ own behaviours in this vital area. There are no doubt plenty of other reasons, such as the far too casual availability of credit – but once the basics are absent, then an unhappy outcome is almost inevitable.

 

By extension, the big challenge for us in our profession is how we seek to supply a corrective emphasis which rectifies the kinds of poor outcomes that result from financial inadequacy. I am not speaking here primarily of services aimed at those on low incomes, or in the midst of a debt crisis – but rather how we ‘train’ our clients, influence their behaviours and expectations. Unfortunately, my experience of (other) IFA firms is not entirely promising. I have seen more examples of the ‘consolidation’ of unsecured credit debt into a larger secured mortgage liability than is good for a man of sensitive disposition! In fact, I have been staggered at the number of cases reviewed over the years, where the obvious, simple planning solutions were ignored in favour of the almost entirely redundant remortgage. In such cases, the adviser colludes with the client’s disastrous financial behaviour in order to exacerbate what is an already fragile situation.

 

This is compelling evidence of an industry which places an emphasis on ‘stuff’ rather than on planning, and as long as it continues it is difficult to see how we, as financial-planners, might genuinely improve our clients’ financial outcomes.

 

So, how will you deal with these issues with your clients in 2010? Within the first quarter of this new year, 2020 Financial Services intends to make available to its members a ‘best of breed’ financial planning guide to help advisers work through these issues with clients.