OpinionNov 21 2018

Look out for vulnerable clients

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Look out for vulnerable clients
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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.”

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.

If you do not spot that a client is vulnerable – or potentially so – then how can you be sure that they understand whatever financial products you are arranging for them?

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.

This echoes the findings of the FCA’s Future Approach to Consumers report, which warned that a lack of financial resilience was the highest indicator for a person’s vulnerability.

But let us put the More2Life research into context. The company surveyed just 152 equity release advisers last month to come up with its findings. That is an insignificant number. So does that mean the results are insignificant?

Far from it. They should serve as food for thought for all advisers about their approach to clients’ vulnerability.

Advisers must act

Stuart Wilson, corporate marketing director at More2Life, said: “Advisers must be confident that they are not just able to recognise vulnerable clients, but also that they are fully equipped on how to communicate with them and manage their needs accordingly.”

That is an essential point for all advisers – it is not only important to spot potentially vulnerable people, but also to know how to help them.

Patrick Connolly, head of communication at Chase de Vere, told Financial Adviser: “Identifying and working with vulnerable clients should be an integral part of the financial advice process.”

I could not agree more. And it is in advisers’ interest to do so. Apart from the satisfaction of helping people get their best lives, there is also the important factor of professionalism.

If you do not spot that a client is vulnerable – or potentially so – then how can you be sure that they understand whatever financial products you are arranging for them? If it is later revealed that a client did not understand the product, then that opens advisers up to accusations of mis-selling.

No limits to protection

The financial industry is still reeling from many instances of mis-selling in the past decade or so. Could it survive more?

So there is a responsibility to protect your own reputation as well as your client’s finances.

How far does your responsibility extend to a client’s welfare? I do not think there are limits. 

That means it is not just about ensuring they make positive financial decisions, but also that they avoid foolish ones. Helping to prevent them falling prey to the latest scam, for instance, should also be part of the process.

In other words, as well as advising them, you should be informing and educating them. 

Simon Read is a freelance journalist