It is easy to assume that it is the elders within a multi-generational family who will find themselves vulnerable.
We can make very clear links between ageing and physical or mental vulnerability.
For example, sensory or cognitive impairment can create challenges – and we’ve seen in the Financial Conduct Authority’s work on this topic that both can affect our ability to engage effectively with financial services.
This in turn can lead to client detriment, with a vulnerable customer defined as “someone who, due to their personal circumstances, is especially susceptible to harm, particularly when a firm is not acting with appropriate levels of care”.
Harm can be suffered in many ways, from being the victim of a scam; experiencing financial exclusion or being unable to manage a financial product.
And yet ageing is just one of many factors that can drive vulnerability. For intergenerational planning, we also need to consider some very specific triggers of potential vulnerability:
- The effects of caring for others and/or acting as their attorney. This can create significant pressures on the carer/attorney, leading to a lack of focus on their own finances.
- Emotional and practical difficulties for the bereaved. As well as coping with the loss of a loved one, there may be additional responsibility for dealing with their estate.
- The loss of a life partner, who may have been responsible for managing the household finances.
- The implications when wealth is inherited by those with a lack of financial experience.
In other words – any member of any generation of a family may find themselves in vulnerable circumstances. Advisers can develop processes and policies that help them both identify those clients and properly support them.
Understanding the broad range of characteristics of vulnerability is vital. Typically, these fall into four categories:
- Physical and mental health conditions or illnesses that impact ability to carry out activities, including looking after one’s finances
- Major life events that have an emotional and/or financial impact
- Things that impact financial resilience – like a sudden change in circumstances
- Having low financial capability, such as little financial knowledge or confidence in managing money.
Skillful and in-depth questioning is key. Alongside fact-find questions and techniques that advisers have developed, models like TEXAS or IDEA open up great client conversations and help an adviser to understand:
- The impact that a situation has on the client
- The potential consequences in relation to their ability to manage a financial plan and make decisions
- Any additional or different support needs that must be put in place
It makes good sense to build a consideration of how vulnerability might impact across multiple generations of one family within a firm’s advice framework.
It isn’t just a question of meeting FCA expectations of firms – and they have set out clearly what they want to see in FG21/1: Guidance for firms on the fair treatment of vulnerable customers.
Moreover, when a family feels that their adviser understands not just their financial needs, but other support needs, it strengthens relationships throughout the generations.
Firms seeking support for developing an approach to working with clients in a vulnerable position can review the FCA's guidance on this topic. Additionally, many providers – such as Scottish Widows – offer education and tools to support advisers.
Jan Holt is strategic relationship manager (annuities) for Scottish Widows