Author: Comentis
The important issue of financial vulnerability has rightly been in the news a lot this 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[1], the issue is not going away anytime soon. This was clearly highlighted in the FCA’s 2020 Financial Lives coronavirus survey, which revealed a staggering 27.7 million adults now display ‘vulnerable’ characteristics. This is 53% of the UK adult population.
For many advisers, dealing with vulnerable clients is nothing new. However, what has changed is how vulnerable clients are now classified and how they can be more easily identified. Providing quality, tailored advice has always been a big part of a financial adviser’s role. However, when it comes to vulnerable clients, there is a need for extra care and attention to ensure their unique circumstances are taken fully into account.
How to recognise vulnerable clients
Defining who is vulnerable has never been easy. This has been further complicated by the problems caused by the financial crisis and the Covid pandemic. Despite this, as we begin to better understand what vulnerable means and continue to feel the effects of recent events, one thing has become clear, the number of vulnerable clients is rising significantly.
Addressing the situation in February of this year, the FCA 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” [2].
Expanding on this, the regulator highlighted what it sees as common characteristics of vulnerability, including those with poor health, those experiencing life-changing events, such as suddenly caring for elderly relatives, and those with emotional and capability issues, such as poor literacy skills.
The update was considered by some as recognition of the problems many have identifying vulnerable clients beyond those with obvious physical disabilities. For advisers to better help such individuals, there is a growing need for them to better understand what ‘vulnerable’ looks like amongst their specific customer groups. For example, pension advisers are likely to have a much older customer base than say mortgage advisers. As such, vulnerabilities in this group are likely to centre around issues related to old age and health rather than say dangerous working conditions or risk of redundancy.
Technology helping cut through the confusion
With such an increase in numbers, it’s perhaps no surprise that the FCA has reported a rise in cases where firms have failed to consider the needs of such vulnerable clients. Whilst this is often unintentional, it demonstrates the fact that much more remains to be done. One big problem that advisers have is correctly classifying who is vulnerable and who is not. This is because financial vulnerability has such a wide scope and is therefore open to interpretation, causing discrepancies between what different advisers’ class as vulnerable.
With focus on vulnerable clients likely to intensify, the FCA is expected to require firms to more regularly produce evidence of their efforts to address and solve such issues, such as why a client was not deemed vulnerable. Such 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.
For more on how to identify financial vulnerability, watch our webinar or speak to Tenet Compliance Services about how we can support you with your vulnerable clients.