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How can financial advisers support their vulnerable customers?

  • Describe how the FCA defines vulnerability
  • Explain the 'temporal nature' of the vulnerability
  • Identify how to create a 'safe space' for clients
CPD
Approx.30min
How can financial advisers support their vulnerable customers?
 Pexels/Cottonbro

By following a three-step framework, financial advisers can successfully identify and support their at-risk clients. 

Rewind to March 2020 for a moment, and few could have imagined the extent to which our personal and working lives have been impacted since the outbreak of Covid-19, with the pandemic causing unprecedented disruption and damage to public health, economies, and wider society. 

According to the Financial Conduct Authority, there are almost 28m financially vulnerable adults living in the UK, a figure that was less than 4m before the pandemic struck. As such, we are at a crucial crossroads, where financial advisers have a critical role to play in restoring the nation’s financial health by supporting these vulnerable people. 

This may sound like a tremendous challenge, yes, but it need not be cause for alarm and certainly should not be something advisers shy away from. With the right training in place, the sector can play its part in rebuilding financial confidence. 

With the emergency lifelines that have been helping to keep businesses afloat and employees on companies' books beginning to taper off, the financial services sector has a vital role to play in ensuring that nobody falls through the cracks as government support narrows. 

Indeed, while it is concerning to see a greater number of at-risk customers emerging, advisers can also see this as an opportunity to create better structures and help more people who may not have been well supported before. It is also important to make sure that vulnerability does not translate into an automatic inability of these customers to access financial products. 

For advisers, this creates a series of critical questions that need to be answered. After declaring an individual as vulnerable, what comes next? What is best practice when it comes to supporting these customers? How can financial advisers ensure they comply with regulations while giving their clients access to the best possible products and support?

A simple three-step framework can help to shape the different approaches that advisers should consider when dealing with at-risk customers. 

Identify, link and support

The first stage, not surprisingly, is to identify clients who are financially vulnerable, a task which is easier said than done. 

The FCA describes a vulnerable person as somebody who, because of their personal circumstances, is “especially susceptible to harm – particularly when a firm is not acting with appropriate levels of care”.

This covers a wide range of situations and characteristics that financial advisers need to consider. 

Here, the FCA outlines four key drivers: 

  • Health: conditions or illnesses that affect the ability to carry out day-to-day tasks.
  • Life events: major life events such as bereavement, relationship breakdown or redundancy.
  • Resilience: low ability to withstand financial or emotional shocks.
  • Capability: low knowledge of financial matters or low confidence in managing money.

Many of these telltale signs can be difficult to spot however, especially when the individuals in question may wish to hide their situation or do not believe they are in a financially vulnerable position. Furthermore, what one financial adviser deems vulnerable may not be considered the same by another – it is ultimately a process that involves a degree of subjectivity.