Her uncle had died suddenly a few months earlier and her aunt had found herself in possession of a large amount of money, with no idea of how to manage it.
The couple had no children and had lived modest lives, so they had steadily amassed wealth over the years – from salaries, from an employer share programme and from other share purchases.
The uncle was highly organised, with a good grasp of finance, so had always looked after the money. He had enjoyed researching and making investments, so had not used a financial adviser.
Prior to his death, his careful choices meant the couple had been in a very secure situation. Overnight, and unexpectedly, the aunt had become extremely vulnerable.
My friend’s uncle had done everything right: he had maintained excellent records and, in case of his death, had left instructions about how to access the information. But his wife had never paid a bill or used online banking, let alone managed a complex portfolio of savings, shares and other assets.
She was also quite isolated, with most of her family living overseas, and was reliant on friends and neighbours to help her navigate her new circumstances. My friend was concerned that this meant a lot of people were aware of both her aunt’s financial position and her lack of understanding, leaving her open to exploitation. She was keen to find an adviser for her aunt, but did not know where to begin.
I am often asked this question, and in very similar circumstances. People frequently come to financial advice at the most challenging times of their lives. They may be handling a lot of administrative tasks at once, as well as grief and other difficult emotions. At times like this, it is not easy to know who to trust.
Overnight, and unexpectedly, the aunt had become extremely vulnerableWhile services such as VouchedFor and Unbiased have sought to plug the gap, people are – understandably – often reluctant to place their confidence in an adviser without a personal recommendation. Indeed, asking friends and family is still the Financial Conduct Authority’s first suggestion to people wondering how to find advice.
My first takeaway from my conversation with my friend, therefore, is that there must be more our industry can do, both to reach people when they are not at points of crisis and to help people find the right adviser in times of need. My second is something the FCA is also focusing on with its new consumer duty: that helping vulnerable people is an important part of the adviser’s role, and one that warrants special care.
Consumer duty
The regulator set out guidance for the fair treatment of vulnerable customers back in February 2021, with the goal of ensuring that vulnerable consumers experience fair treatment and achieve outcomes that are as good as those of their non-vulnerable peers.
The latest consultation paper on the proposed consumer duty did not suggest additional rules specifically on interactions with vulnerable people, but did note that vulnerable clients are at particular risk of harms – such as exploitation of behavioural biases or selling of products and services that are not fit for purpose – and particularly likely to benefit from higher standards across the board.
The FCA’s Financial Lives survey from October 2020 found that 27.7mn adults – or 53 per cent of all adults – displayed at least one vulnerability characteristic. However, when asked whether they saw themselves as vulnerable, only 14 per cent said yes.
The regulator’s guidance therefore places the onus of determining vulnerability on the adviser, identifying four key drivers – health, life events, resilience and capability – against which clients should be assessed, and requiring advisers to take those factors into account in their client interactions.
This is not an easy task. While some of the characteristics associated with the four drivers of vulnerability are fact based, others are open to interpretation. Assessing factors such as cognitive ability and mental health is a task for skilled professionals in those fields.
The regulator’s guidance places the onus of determining vulnerability on the adviserThe consumer duty will make some of this more challenging because the FCA will be looking to businesses to do more to monitor and demonstrate their approach.
So, what can we practicably do? Using technology to put robust questionnaires in place, collect data that might be useful in assessing vulnerability and ensure regular updates – in particular before any changes are made to a customer’s investments – will be vital from a compliance perspective.
Many advisers already have the interpersonal skills and flexibility of approach that make them trusted partners in challenging circumstances. But this does not come naturally to everyone. Businesses will need to be able to show that they have training and development programmes to help their advisers recognise the drivers of vulnerability and take them into account in their interactions.
Catching up with my friend, I was glad to learn that my thoughts about the type of adviser her aunt needed had meant she was able to ask around and find the right person. But client vulnerability remains an ever-present challenge, and one we must all do our best to address.
Ben Goss is chief executive of Dynamic Planner
