Regulation 

How the regulator defines a vulnerable client

This article is part of
Guide to advising vulnerable clients

How the regulator defines a vulnerable client

Vulnerable clients have traditionally been envisaged as older people living alone, easily fooled by scammers and dodgy salesmen.

But while there is an element of truth in claiming older people are generally more vulnerable, thanks to age and in some cases, age-related dementia, the truth is anybody can become a vulnerable client at any time.

As the Financial Conduct Authority’s (FCA’s) 2015 Occasional Paper: Consumer Vulnerability stated: “Vulnerability can come in a range of guises and can be temporary, sporadic or permanent in nature.”

It can hit any person at any time, whether old or young, and as a result, this “fluid state needs a flexible, tailored response from firms”, the FCA paper stated.

It added: “Multi-layered vulnerability, and sudden changes in circumstances, are particular indicators of high risk”.

According to Jacqueline Berry, director of My Care Consultant, vulnerability is squarely “on the agenda of regulators across industries and professions”.

She comments: “Ensuring customers in vulnerable circumstances are treated not only fairly but also with empathy and sensitivity to their circumstances, is a growing priority.”

What constitutes ‘vulnerability’?

Tony Gammon, director and head of client service at Thesis Asset Management, states: “There are a number of trigger points that might cause us to classify a client as ‘vulnerable’.

“There is no exhaustive list, but it would include those with a physical disability or illness, mental health problems, divorced, bereaved, low language skills, advanced in years or very young.”

Keith Richards, chief executive of the Personal Finance Society (PFS), highlights the potential risk factors that can contribute to vulnerability in the context of financial services, as outlined in the Practitioner’s Pack attached to the Occasional Paper. 

These are: 

  • Physical disability.
  • Severe or long-term illness.
  • Mental health problems.
  • Low income and/or debt.
  • Caring responsibilities (including operating a power of attorney).
  • Being ‘older old’ – over 80, which is correlated with physical or mental impairment.
  • Being young (correlated with less experience).
  • Changes in circumstances, such as job loss, bereavement or divorce.
  • Lack of English language skills.
  • Non-standard requirements or credit history, such as armed forces personnel returning from abroad.

Stephen Lowe, group communications director for Just Group, comments: “Vulnerability can occur suddenly or gradually, be temporary, permanent or fluctuating.

“In fact, most people can expect to become vulnerable at some point, a situation which can be made worse by low income, debt or poor treatment by financial services firms.”

For Claire Trott, it is therefore essential for firms to make sure they are acting with appropriate levels of care. 

She explains: “Vulnerability has a broad definition and proves there are more vulnerable clients out there than one might initially think.

“Moreover, people might not realise they are vulnerable, and might not be permanently so, but only because of changing circumstances over time.”

How prevalent is vulnerability?

Given the list above, it is reasonable to suggest the average financial adviser to be able to pinpoint at least one client that could fit into one or more of these categories. 

Mr Richards says: “Almost any clients or prospective clients of a financial advice firm can, and most likely will, be subject to some of the above at some point in their lives.