How to spot if a client is vulnerable

Clients are increasingly developing long-standing relationships with other professional advisers – financial advisers in particular.

Seeking advice on how to deal with finances can be a deeply personal and emotive matter, and clients often open up about issues in their personal or family life during the process. Financial advisers are therefore often well-placed to identify clients’ vulnerability and to introduce safeguards to protect such clients.

From a risk perspective, financial advisers will want to ensure their client has the capacity to give instructions. However, the duty to be on the lookout for vulnerability goes beyond that.

A shift in the way we think about vulnerable clients is happening, and increasingly financial advisers are expected to identify broader signs of vulnerability and to know what to do about them.

People who have capacity should be allowed to make their own decisions, even if they are inadvisable ones.

This is apparent in the Financial Conduct Authority guidance published in February 2021, containing more than 50 pages on identifying, dealing with, and protecting vulnerable consumers at all levels, from product development to direct client contact. 

As a matter of best practice and client service, all professional advisers will want to make sure that their clients are protected and safeguards are introduced when necessary.

This may be in the form of a lasting power of attorney authorising someone else to give instructions on behalf of the client in the event of future lack of capacity, or a court application if the client has already been found to lack capacity to make a particular decision.

These legal safeguards are themselves not entirely waterproof, but that is perhaps the subject of another article. 

Warning signs to look out for

There is no exhaustive list of capacity warning signs to look out for, but the issue that often comes to mind is old age and related potential cognitive disorders such as dementia and Alzheimer’s disease, but there are many more ways in which a client’s capacity can be impaired.

For example, a client could have mental health issues, suffer from poor physical health, or be experiencing a difficult life event that makes them more vulnerable than they might otherwise be. 

There are however some general patterns that are typically warning signs that a client is in a vulnerable position. It is important to bear these signs in mind on an ongoing basis throughout the retainer, as while some issues may be fairly permanent, others may fluctuate or occur in intervals.

1. Dramatic departure from previously stated intentions