Look out for vulnerable clients

Simon Read

Simon Read

Do you know if any of your clients are vulnerable? You should know, and not only if they are already vulnerable, but if there is a risk of them becoming so.

What do I mean by vulnerable?

The Financial Conduct Authority defined it earlier this year as: “Someone who, due to their personal circumstances, is especially susceptible to detriment, particularly when a firm is not acting with appropriate levels of care.”

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The financial watchdog has this month forced banks to publish how they treat vulnerable people. It said: “We expect firms to pay attention to indicators of potential vulnerability and to have policies in place to deal with consumers who may be at greater risk of harm.” 

If you think that sounds like more needless red-tape, then maybe you are in the wrong business.

Financial advisers have a responsibility to think about their clients’ welfare, and help them if necessary. It makes sense. Vulnerable people are hugely at risk of making financial mistakes.

Financial advisers’ duty of care extends beyond just helping clients track down the right home for their nest eggs. I have often criticised advisers for flogging needless insurance, but helping clients find the right protection is essential, too.

By doing so you are helping people achieve financial security and the peace of mind of knowing that, whatever happens, the family finances will prosper. But your role should not just extend to protection, but also prevention.

Spotting vulnerability

Last year’s Financial Lives survey by the FCA found that half of UK adults showed signs of potential vulnerability.

This warns that there are millions of folk who are just one-step away from financial disaster.

How do you spot those folk and take action to help them avoid the potential problems?

Some alarming research published last week by equity release lender More2Life suggested that most advisers have no idea.

The survey suggested that just 17 per cent of financial advisers think it is easy to spot a vulnerable client.

That means five out of six advisers do not find it easy to do so. That begs the question: why not? Surely it should be obvious?

Maybe not. The survey asked advisers how they spotted signs of vulnerability.

Nine out of 10 said mental ill-health was the biggest risk factor they looked out for, followed by low literacy, numeracy and financial capability.

These should all be huge red flags, which you would think should become obvious when chatting to a client.

But apparently not. More than 80 per cent of advisers asked in the survey said there was a need for greater education and additional resources to help spot vulnerable clients.

However more than half – 55 per cent – recognised that significant financial worries might make a customer vulnerable.