Nothing in life is FREE, or is it?
You know as well as I do what everyone is thinking when the word 'FREE' comes up: "What's the catch, nothing in life is free?" Well to a certain extent, of course that is correct, but I will be making the subject clearer in this blog. I'm talking primarily about free Debt Advice providers that are authorised by the Financial Conduct authority as not-for-profit organisations, but you will find a few exceptions referenced as you read through.
So how does it work then, what do we mean by 'Free Debt Advice', is it some sort of con? No, absolutely not, it is absolutely FREE to 'you' - the individual seeking debt advice. You see, the free debt advice sector has mixed models of funding to support charitable and social objectives. Though, let's be clear, you may indirectly fund free debt advice through the following ways:
Buying goods and services from private firms that donate some of their profits to social causesBorrowing money at interest rates that include a proportion of bad debt offset
Government taxation, such as, council tax/national insurance/income taxBuying a lottery ticketPublic donations
Payment of formal insolvency set up and application fees for certain debt solutions
I guess you could say that a good proportion of funded free debt advice is very similar to our NHS, FREE to access, yet ultimately funded by the public purse through government taxes.
Mixed funding models snapshot
I've shared a *snapshot below of the free debt advice sector and the usual mixed models of funding. You'll see one exception to the not-for-profit sector in Payplan, a commercial firm. I've placed them in the table because they manage a similar funded arrangement to StepChange Debt Charity with creditors to run free debt management plans.
By clicking on the image, you can .
Brief definition of the10 funding types
1. Statutory Funding - Government Grants & local Councils
This is funding directly form the public purse, i.e. raised from taxation. Central and local government recognises the value in supporting not for profit organisations. Most Citizens Advice offices have core funding from local government. This funding is usually by a service level agreement and could involve an open tender procurement process.
2. Money Advice Service - Bank levy
This is funding raised by the Financial Conduct Authority levy on Banks and financial institutions, including Payday Lenders. The Money Advice Service is funded by this levy and manages free debt advice contracts in the sector.
3. Private Sector Funding
Many corporations donate to charitable causes as part of a corporate social responsibility strategy (CSR). The Money Advice Trust (trading as National Debtline & Business Debtline) is funded 60% with private sector funding.
4. Fair Share Contribution
This private funding arrangement is paid by participating financial institutions as a percentage (figures between 6% &15% have been mentioned but not openly verified) of money distributed on behalf of debtors in free debt management plans (DMP's). Extraordinarily, it is mostly an arrangement by 'gentleman's agreement'. Some not-for-profit referral partnerships involving DMP's have a private agreement to share the Fair Share Contribution to help support costs incurred in making the referral.
5. Debt Relief Order fee sharing
Organisations that are DRO Competent Authorities are entitled to receive £10 from each £90 DRO fee paid. Some membership organisations share the £10 with members and some use it to entirely fund DRO support services.
6. IVA's (or Trust Deeds in Scotland) fee sharing
a) Some organisations receive a donation from a share of insolvency practitioner set up fees when they refer an appropriate debt client for an IVA or Trust Deed.
b) Some organisations receive a contractual payment from a share of the Insolvency Practitioner fees when they support the set up and appropriate referral of an IVA or Trust Deed, i.e. doing some of the work an Insolvency Practitioner would ordinarily do.
c) Some organisations may have an Insolvency Practitioner attached to their organisation in which case they would have the benefit from all of the insolvency set up fees charged but would need to manage the IVA or Trust Deed supervision.
This funding can be from the public or any organisation. Public donations are more common among charities. Faith donations involve donating to specific religious causes and movements, such as Christians Against Poverty.
8. Charitable Trusts & Foundations
Organisations have to apply for this type of funding in a very competitive market, The Big Lottery Fund is a large grant provider, using money from lottery ticket sales to offer small and large grant programmes to benefit social objectives and the community. Similarly, foundations are created to give grant opportunities; these can be set up by financial institutions, such as, Friends Provident Foundationor from otherwise generous benefactors wishing to support benevolence in society.
9. Chargeable services/products & affiliates
Most not-for-profit organisations look to generate their own income from chargeable services at some stage; this can include offering training services, consultancy or a dedicated contracted service. Citizens Advice sell conference places, policy souvenir products and published works to raise income, and Cambridge Citizens Advice own their premises and generate income from tenants. A few organisations raise money via affiliate programmes (promoting certain, trusted products and services) these companies will share a small commission or donation - this is how Martin Lewis, Money Savings Expert, grew his famous website and branding.
Volunteers are an unpaid workforce, often unfairly overlooked by executives when assessing financial resources. Citizens Advice has a large percentage of volunteers running their services. A common myth is that volunteers are unskilled, and yet more often than not, they come from highly paid, professional backgrounds and add substantial value to the not-for-profit sector. Read about the economic value of volunteers here.
Other presenting forms of free debt advice
Fee charging debt management firms
Some debt management companies will charge you up front for setting up any debt solution, but they may offer initial 'free debt advice', It is really important that you understand what type of service you are using and any fees involved before you start receiving advice. You should also check that they are properly regulated by the Financial Conduct Authority and whether they are a member of the trade bodies DEMSA & DRF.
Nothing in life is free
So whether fee or free debt advice; somebody somewhere is paying for it, via one means or another, so what's the difference? My goodness, I don't want to enter that sensitive debate here, or I may end up with a social media lynch mob after me, hey I'm used to it really! Therefore, I will finish off by highlighting what you get from a not-for-profit, free debt advice provider:
Charitable and social objectives - any funding, raised by whatever means, is invested in activities and services for the benefit of social good. No shareholders to satisfy, just people in need. The words 'independent' and 'impartial' aren't defined by the organisation's income source, but rather by their constitutional set up - their charitable aims and social objectives.
Accountability & trust - whether a charity or a community interest company; reporting and auditing is required in addition to the Financial Conduct Authority's monitoring for commercial firms. Not-for-profits must demonstrate that they are meeting social need to funders.
Holistic money advice - Most not-for-profits have valuable local benevolent connections making it easier to access charitable money and more often than not, negotiating more effectively with local, priority creditors. They also keep up to date with benefit changes and most will help with benefit claims to speed up income maximisation.
Professional debt advice - The tough regulation around debt advice demands a professional, skilled delivery of free debt advice and fee charged debt advice. Many not-for-profit money advisers have already passed skills and competence based exams and/or are accredited by a membership organisation or body. Check with the not-for-profit organisation you approach for free debt advice.
Values & benevolent motive - There's that old label isn't there, "the do gooder with a purple rinse and pearl necklace". Well forget that right now, because the modern not-for-profit organisation has a diverse work force with modern values and attitudes. Non- judgemental, promoting equality and diversity with common aims - simply to empathise and proactively help people in need.
That purple rinse is bang on trend, and I can tell you, its better than ever before!
*Snapshot - The comparison table infograph is a guide only, as at May 2017, sourced from publicly available information, and only lists a limited selection of free debt advice providers for statistical purposes. The table is produced to show comparisons and similarities.
If you need free, independent debt advice, please contact the Money Advice Hub team.