If you’re seeking financial help, you likely don’t want to spend any more money than you have to. Unfortunately, there are a lot of people and businesses looking to take advantage of your situation.

You may see any number of advertisements for financial consultants and debt advisors — but not all of their claims are true.

One of the biggest red flags out there is when a financial assistance organization charges an up-front fee.

This might include an up-front fee for a personal loan (like a down payment) or an up-front fee for credit counselling, or debt settlement service. In any case, this is a warning sign you should pay attention to.

Let’s look at the types of financial advisors you might encounter and how they are paid:

1. Mortgage Brokers

A mortgage broker can, of course, arrange your mortgage if you’re buying a home, but they can also arrange for home equity financing down the line, too. This might include a home equity line of credit (HELOC), mortgage refinancing, or a second or third mortgage.

In Canada, mortgage brokers are paid by commission. The lender who is providing the mortgage, like a bank, pays the broker that commission (the finders’ fee) for referring the application and closing the mortgage.

Commission rates can vary widely depending on many factors, such as the lender, the mortgage type, the mortgage length, etc.

The result is that in most cases you don’t have to pay any up-front fees.

It’s important, however, to be aware of the commission-based pay to ensure your broker isn’t trying to arrange a bigger deal to get better pay.

2. Debt Counsellors

There are two types of debt counsellors: for-profit, and not-for-profit.

Many for-profit debt counsellors do charge fees for their services — that is how they are paid. This means that you may have to pay a fee even if your creditors refuse to negotiate or make a deal to settle your debt.

This can be difficult to manage if you have to spend money up front, but then don’t receive financial help in return.

Beware of any debt counselling company trying to encourage a high-interest loan to pay off your debts or charging you an up-front fee for help.

The other side of the coin is that credit counsellors in Canada aren’t legally required to have any specialized training. So, you could be dealing with someone who has no education in the finance or insolvency fields, even if they don’t charge an up-front fee.

3. Licensed Insolvency Trustees

Licensed Insolvency Trustees (also known as Bankruptcy Trustees or LITs) are federally regulated professionals who provide financial advice and services to individuals and businesses. In order to become a LIT, candidates must undergo a qualification program and examination process.

LITs are the only professionals in Canada who are authorized to administer Consumer Proposals and Bankruptcies. So, if you were to go to a debt counsellor, and they recommended these options, you would have to go see a Trustee as well — you would just be paying a middle person.

LITs must adhere to a strict code of ethics, including how they charge their fees. Trustees’ fees are regulated by the federal government and they are paid through tariffs during a Bankruptcy or Consumer Proposal. Typically, Trustees do not charge for the first consultation.

Trustees offer more than just Consumer Proposal and Bankruptcy services, too. They can also look at other debt consolidation solutions, credit counselling options, and help make a financial plan. Most Trustees do not charge up-front fees for these services.

A general rule of thumb is to look at the deal you are being offered and who is doing the offering. Ask about the person or company’s qualifications, regulations, and fees.

If they are charging you an up-front fee, consider turning to a Licensed Insolvency Trustee. For instance, at Fuller Financial Solutions we offer free consultations, so you can understand your options without paying a dime.

Contact us today to schedule a confidential meeting. We can be reached at 416-927-7200 or www.fullersolutions.ca.