Financial vulnerability has rightly been in the news a lot this past year.
And with the Financial Conduct Authority (FCA) now estimating as many as one in every two adults are possibly at risk of financial vulnerability – a staggering 27.7 million UK adults – the issue is clearly not going away anytime soon, writes Warren Vickers, managing director at Tenet Compliance Services.
For many advisers, dealing with vulnerable clients is nothing new. Providing quality, tailored advice has always been a big part of an adviser’s role, but when it comes to vulnerable clients, there is a need for extra care to ensure their unique circumstances are taken into account.
However, defining who is vulnerable has never been easy, and this has been further complicated by the pandemic as more people’s circumstances tip them into potential vulnerability.
It’s a spectrum of risk with a wide scope that’s open to interpretation, causing discrepancies between what different advisers class as vulnerable. But while the industry and wider society are beginning to better understand what vulnerable means, vulnerable client numbers continue to rise.
Financial and emotional resilience
The FCA has updated its definition of ‘vulnerable’ as a person who “due to their personal circumstances, is especially susceptible to harm – particularly when a firm is not acting with appropriate levels of care”.
It also highlighted common characteristics of vulnerability, including poor health and those experiencing life-changing events, such as suddenly caring for elderly relatives.
The update was seen as recognition of the many problems associated with identifying vulnerable clients beyond those with obvious physical disabilities.
While some vulnerabilities can be relatively easy to spot, identifying other traits can be much more hit and miss.
For example, poor literary or numeracy skills, as well as dyslexia, can often be overlooked by clients themselves, unaware that they have such a condition or that it’s of relevance. Meanwhile, deteriorating memory is frequently only noticed in its later stages – often when it’s too late.
There’s also a whole host of well-hidden vulnerability traits. One in four people suffer mental health problems annually, with around 36% of common mental health disorders going undiagnosed.
Meanwhile, over 40,000 under 55s in the UK are estimated to have dementia, a condition typically thought to only affect the more elderly, while around 1.5 million in the UK have a form of learning disability.
On top of this, there’s a difference between resilience and capability. Resilience is not just about financial resilience, but also emotional resilience. Does the client have the building blocks to deal with stress and anxiety?
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This is a minefield for advisers already busy servicing multiple clients, managing investments, and staying on top of wider regulatory requirements.
It also goes unaided by cognitive bias, which can sometimes lead advisers to jump to the wrong conclusions.
Technology helping cut through the confusion
Thankfully, technology is helping advisers cut through the confusion. Digital platforms, such as Comentis, are helping to eliminate inconsistencies, cross-referencing digital details with clinical expertise from health experts such as psychologists.
This kind of tech enables advisers to more accurately and quickly identify and assess vulnerability, and thus better serve individuals’ specific needs.
Technology is also bringing greater consistency. By accurately categorising the criteria of vulnerable clients, everyone in a firm can be clear and consistent in their assessments and decisions.
Finally, with focus on vulnerability likely to intensify, the regulator will require firms to more regularly produce evidence of their efforts to address these issues, such as why a client was not deemed vulnerable.
The FCA is already reporting a rise in cases involving firms failing to consider the needs of vulnerable clients. This is often unintentional, but the increasing risk to both vulnerable clients and firms highlights the need to get things right, and the important role technology can play in providing better protection for all.
Helping clients, protecting advisers
Technology is clearly a game-changer, and advisers should take advantage of this, but face-to-face advice remains crucial in conversations around vulnerability.
Once an adviser identifies clients experiencing vulnerability, they must create a safe space where the client feels in control, directing the conversation in a way they are comfortable with.
There’s no need to be the font of all knowledge – listening to clients and providing emotional support is key, and there’s no need to jump at the first solution.
Listen at least twice as much as speaking, be present and suspend judgement. Simply, seek to understand then to be understood.
With the right tools and skills, advisers can not only navigate through the vulnerability maze, they can ensure quality outcomes for their clients, protecting their financial wellbeing and their own peace of mind along the way.
This article was written for International Adviser by Warren Vickers, managing director at Tenet Compliance Services.