Doug Hoyes on competing in the personal bankruptcy space

Doug Hoyes, BA, CA, CPA, CBV, CIRP, LIT
Co-Founder
Hoyes, Michalos & Associates Inc.

To the general public who see him on TV business news, Doug Hoyes is the serious guy in a suit that is always warning Canadians to get their spending under control. But helping consumers manage their debt has become Doug’s passion — a passion that has translated into a very successful personal bankruptcy practice. Doug sits down with us and shares how he built his practice and what he does to succeed in the ultra-competitive personal bankruptcy space.


1) You’re an accountant by background. How did you get into the restructuring world, and specifically the personal insolvency industry?

I started my career as a chartered accountant with KPMG as an auditor, but quickly realized that I was not eager to devote my working life to verifying that transactions from last year were reported correctly. Corporate insolvency allowed me the opportunity to work with companies and lenders to improve the future, not verify the past.

After 10 years with KPMG in the Toronto area I joined what was then Coopers & Lybrand in Waterloo, where, in addition to my corporate work as a bankruptcy trustee and chartered business valuator, I also handled personal insolvency files, because in a small office you wear many hats. Unlike a large corporate file where you may spend many months working on one small segment of a file, in personal insolvency you can work on a dozen different files every day.

As a corporate practitioner, I had always perceived personal insolvency to be less rigorous. Simpler. Easier. And while it is true that the most technically demanding issues in insolvency law are corporate issues, in a large corporate file those issues are often decided by the lawyers, or the court.

In a personal file, the Licensed Insolvency Trustee (“LIT”) makes the decisions. You don’t discuss issues with the manager, partner and lawyer on the file; you assess the facts and make the decisions on your own (although of course your colleagues are always available for a second opinion).

I view each personal file as an individual case study. The basic facts may be similar, but each individual has a unique situation, and it’s my job as the LIT to determine the issues, and most importantly determine how I can explain the issues, and the solutions, to the debtor. I find that process intellectually satisfying, and I get to do it ten times a day.

2) You went off on your own in 1999. What were these early days like? What were the biggest challenges?

Working for a big firm, you are only responsible for small pieces of the puzzle. On your own, you are responsible for everything. At a big firm, if your computer breaks you call the I.T. department. On your own, you are the I.T. department. There is no partner to make the final decision on a technical issue on a file. It’s all on me.

The most significant transition is the amount of time devoted to non-file related issues. You are running a business, so you must quickly learn how to manage an accounting system, pay the bills, deal with payroll and all of the government related filings.

In our early days we had no money. My partner, Ted Michalos and I went from well paying jobs with a big accounting firm to zero income. We were fortunate to have an operating line at our bank to cover our rent and operating expenses, but there was not enough to pay salaries to ourselves. My taxable income our first year was $6,000, and I qualified for GST credits.

It took a few years to pay ourselves almost as much as we had earned at our previous jobs, since most of our excess cash flow was devoted to expansion. It was not until 2011, in our 13th year, when we were able to reap the benefits of expansion and the boom times of the post 2008 credit crisis and earn significantly more than we had earned in our previous jobs as employees with a big firm.

 

3) You’ve since grown the firm to 26 offices and 18 trustees. What, in your opinion, has been the key to your firm’s growth? And the keys to running a profitable firm? What are the key metrics you measure?

The key to success is happy clients. Our trustees play a key role in client service. In some of our offices all client interaction is done by the trustee; the initial consultation, the sign-up, the two counselling sessions, and any other required face-to-face meetings. In our larger offices we have highly trained and experienced team members who also meet with clients, but in virtually all cases the trustee, at a minimum, has done the initial consultation or the sign-up, so our clients have a significant amount of “face time” with the LIT.

A key metric we monitor is how many referrals we get from satisfied clients. Debt problems are not something people like to talk about, but if we have helped a client, they are often eager to tell their friends and family. We know we are helping people when we get a phone call from someone who says “my friend told me to call you, because you helped them.” Obviously we track the standard metrics, like file volume and overall profitability, but referrals from happy clients are the best indication that we are helping people.

4) Marketing is a big part of any personal bankruptcy practice. What do you find are the most effective forms of advertising/marketing?

The most effective form of marketing is a happy client. You can’t buy that. We supplement that with traditional advertising on radio and in print, and we have a significant internet presence. Internet advertising is very complicated. Initially we would run ads on Google for keywords we thought were relevant, but we quickly realized that a keyword that worked yesterday may not be effective today, particularly if our competitors are now bidding more for that keyword, rendering it to be not cost-effective.

We now employ a full-time team of six people to manage all aspects of our internet presence. On a daily basis our team reviews the performance of our digital footprint, and continually makes adjustments. We know from experience that the internet changes very quickly, so constant change is essential.

That’s how we compete with the firms that have bigger budgets. We are very nimble.

5) What do you see looming on the horizon for the personal bankruptcy industry? Do you see a large uptick in filings coming?

I don’t foresee an immediate spike in filings. I expect personal filings will trend upward as interest rates trend upward. Of course, if we have a real estate crash or other exogenous shock, a spike in filings is possible.

The most significant issue we face as a profession is the rise of unlicensed debt consultants. In April 2017 the Office of the Superintendent of Bankruptcy (the “OSB”) issued a report revealing that in 2016 almost 10,000 consumer proposals were filed where the debtor reported having paid for advice before filing with an LIT. According to the OSB, the average fee charged by a debt consultant was $2,400, so that means that, in 2016, insolvent consumers paid over $23 million in unnecessary fees, simply to be referred to an LIT. That is an abomination!

The OSB has long maintained that “we can’t regulate the debt consultants, because they aren’t LITs”. That’s true, but the debt consultants only exist because they have LITs willing to turn a blind eye to these abuses. Debt consultants can’t do consumer proposals, so without LITs, debt consultants could not sell consumer proposals, and they would be out of business. I have fought this fight for many years, and although the OSB does not appear to have taken any action yet, I’m an optimist. My hope is that if the honest LITs raise their concerns with the OSB, and the media, and the politicians, ultimately the OSB will be forced to take action.

6) What advice would you have for young practitioners considering starting out on their own? Is it worth it? Or is there more merit in waiting for succession opportunities at established firms?

Starting your own firm is high risk, and high reward. Start by doing the math: if you file a personal bankruptcy today, you don’t get your full fees for at least 18 months. A consumer proposal “pays out” over 5 years. In the interim, you are funding all operating expenses. Do you have sufficient capital to fund operations for three to five years?

Do you have an entrepreneur’s mindset? Do you want to be responsible for all decisions? Or do you prefer to simply come to work, do your job, and go home?

How will you generate work? In the past you could establish relationships with referral sources, like not-for-profit credit counsellors, but now (as at the time of this writing in April 2018) the OSB is shutting down the not-for-profit credit counsellors, so they will likely not be a source of work in the future. The debt consultants are currently a great source of work if you are willing to play that game, but if the OSB takes action against them, that will not be an option in the future. That leaves you with networking and advertising to generate work.

Are you confident that you can compete against the big firms that have large advertising budgets and the in-house expertise to manage an advertising program? Gone are the days when you could place an ad in the Yellow Pages and not have to think about it again for a year.

If you have access to capital, and the expertise to manage all aspects of an LIT practice (you are technically very strong, and are a good accountant, manager, and have significant marketing expertise), and you are willing to build a practice for five or ten years, you have the potential to make a very good income.

If that is not you, then exploring opportunities with established firms is the more prudent option.

My final words of advice: think ahead. If you are joining an established firm, will they still exist in their current form in five years? In the past, the personal insolvency business was dominated by firms like KPMG, PwC, and Deloitte. In most provinces those once-dominant firms are not longer in the personal insolvency business. It may very well be that some of the current leading firms may not exist in the future either. Firms that rely on credit counsellors or debt consultants for their work may also not exist in the future, so before you join a firm, be sure that they have a solid business model that will continue to grow.

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