Business booming for the financial middlemen
Banks told to fund independent advice services for debtors
Financial adviser and mortgage broker Michael Dowling plans to become a debt adviser under the new insolvency legislation. Photograph: Alan Betson
Debt is big business. And it is leading to a mini-boom in the number of companies and professionals offering to help navigate debtors through a maze of options.
Banks have been instructed to pay for the services of an independent accountant chosen by debtors.
The €250 fee will cover only advice about the bank’s proposals for mortgage restructuring, rather than other options that may suit a debtor.
More significantly, the new personal insolvency legislation will in many cases require the involvement of a “personal insolvency practitioner”. This official will act as a middleman between debtors and the banks.
Insolvency practitioners will stand to earn about €5,000 for each case that reaches agreement, along with about €500 to monitor cases and make sure both sides are making good on their promises.
With so many people expected to go down the personal insolvency route, it is a potentially lucrative area.
Some accountancy or consulting firms that have been providing insolvency advice to commercial firms are lining up to get into the new world of personal insolvency.
But so too are mortgage brokers, financial planners and other solicitors who thrived during the boom but are now trying to reinvent themselves or muscle in on new business.
Michael Dowling, of Dowling Financial and Mortgage Advice, will be one of many applying to become one of the new personal insolvency practitioners.
While he runs a successful finance advice company, he says he is interested in the challenge of helping banks and customers reach mutually beneficial arrangements.
“It will be an onerous task to try to reach agreement,” he says.
“I’ve met clients who would qualify for the personal insolvency process. It would allow them to change their lives again. But they also feel terrified at a lot of the headlinegrabbing over the likely lifestyle changes. They’ll need all the independent advice they can get.”
Everyone, it seems, is interested in getting a piece of the action. Even former rogue trade Nick Leeson, who had his own debt difficulties in the past – with his wrong-way bet on Japanese stocks that ruined Britain’s oldest investment bank, Barings – has joined the fray.
He is joining GDP Partnership to help advise Irish borrowers seeking to renegotiate debts with the banks.
Mr Leeson, who has lived in Ireland for more than 10 years, will join GDP as a principal as it expands into Dublin, the company said in a statement.
“I’ve faced into a number of difficult situations in the past and ultimately seen them turn for the better. It is often difficult to see the solution but rest assured there is always one available,” Mr Leeson said in the statement.
‘Fear and stress’
“There is a lot of fear and stress currently in the country with debt the root of the problem.”
There is no restriction over the type of professions or persons who will be licensed to perform this function.
However, Minister for Justice Alan Shatter says the entry requirements will be set at a high level to ensure the competency of the insolvency practitioners and to promote public confidence in the system.
“Looking at the experience in other countries, insolvency practitioners tend to be accountants or lawyers, but can also be other professionals in the broad financial services sectors. Professional mediators may also bring their unique skills to the role. The service will be responsible for the direct regulation of personal insolvency practitioners.”
Grant Thornton UK is one of the biggest personal insolvency practitioners in the market, with 250 employees and 44,000 active cases.
It has already set up its personal insolvency service here. Stephen Tennant, partner in “recovery and reorganisation” at the company, says it will begin a new era for personal insolvency in Ireland.
“It’s a natural move for us to extend our strong debt expertise and negotiation skills into the personal debt arena,” he says.
“Our objective will be to find tailored debt solutions which will work for those individuals who are burdened by their financial worries. We want to offer structure, advice, help and reassurance to help them realise that there is a solution to make their financial concerns more manageable.”
While the insolvency route may seem attractive, there are many sceptics out there.
David Hall, director of the Irish Mortgage Holders’ Organisation, maintains that for some heavily indebted people it could make more sense to opt for bankruptcy now rather than enter the new regime.
“The application process will be horrific. It’s expensive and lengthy. Even using the fastest negotiating skill, it will take nine months at least. By contrast, you can walk down to the Four Courts tomorrow and start your application immediately.
“Yes, it’s a 12-year bankruptcy, but this will reduce to three under the legislation.”
He recommends anyone facing debt problems to get the best advice they can afford.
“The idea of getting a fair and reasonable deal is still in the gift of individual creditors. There is no pattern when it comes to write-down or deals.
“It's arbitrary, selective, random – it depends on the banks, their evaluation of whether you are dealing transparently with them or not.
“There are examples of assets being disposed of and banks not pursuing them for the balance. At the end of the day, most lenders wish to dispose of the assets and get something back.”