How the regulator defines a vulnerable client

This article is part of
Guide to advising vulnerable clients

“Clients who find themselves in vulnerable circumstances are seldom typical, as vulnerability is personal. 

“That said, whatever the manifestation of vulnerability, they have some commonality – namely being less likely to best represent their interests and more likely to suffer harm of some kind.”

During the FCA’s research into financial vulnerability, it discovered the scale of this in the UK was immense. 

In terms of literacy and numeracy, for example, the Department for Business, Innovation and Skills found one in seven adults had the literacy skills of a child aged 11 or below, while just less than 50 per cent had a numeracy attainment age of 11 or below.

There are currently 800,000 people in the UK living with various degrees of dementia, which Age UK expects to double in the next 40 years, and this affects one in every six people aged 80 and over. 

Moreover, there are more than 1.4m people in the UK aged 85 and over; a proportion of the population which is set to double in the next 20 years and nearly treble in the next 30 years, according to Age UK data. 

Ms Berry adds: “While there are no conduct rules in respect of how the FCA expects firms to respond to this issue, a coherent, consistent and robust approach to vulnerability in delivering good client outcomes for all is a growing expectation from the FCA.”

Some client vulnerabilities may be more easily discernable than others, but others will need to be ascertained by the adviser through a tailored and positive conversation.

In some cases, clients might actually hide certain things if they feel unable to talk about them, such as mental illness.

But just because certain conditions or circumstantial vulnerabilities might be less obvious, does not mean the adviser does not need to deal with clients in a certain fashion.

Indeed, the regulator is clear that advisers must have a proper process in place to help identify and tackle vulnerabilities head-on so that all clients are given the very best personal advice. 

For Claire Barker, managing director of Equilaw, much of this should be common sense: “My view would be someone who needs more help on an objective basis than another client. 

“It could pertain to mental ability, intelligence, physical frailty, special needs or, in terms of age, someone who potentially has less time to buy their way out of a mis-sold or mis-purchased product.”

Mr Richards adds: “Ongoing consideration is needed as to the extent to which these risks apply to a firm’s business model, target market and/or customer base.”

How does the regulator want firms to act?

According to the 2015 Occasional Paper, the FCA was clear financial services firms – from large lenders to small advisory firms – had a duty of care to the client.