Handling vulnerable clients who want equity release

  • Describe some of the challenges over recognising vulnerability
  • Identify the importance of the client's family
  • Explain the FCA's stance on the issue
Handling vulnerable clients who want equity release

Vulnerability is a topic of huge debate in the financial services arena but with 1.5m more UK adults showing signs of vulnerability since the start of the coronavirus pandemic, there is an even greater need for advisers to be able to spot, and take appropriate levels of care with vulnerable clients. 

The reality is that advisers in the equity release industry are probably already working with vulnerable people.

For example, the average age of a more2life client is 70 years old, so there is a higher chance they could have physical disabilities, long-term illness, and/or hearing or visual impairments.

The various issues caused by Covid-19 could mean that greater numbers of older borrowers will be deemed vulnerable over the coming years. It is therefore vital for advisers to have the right skillset to be able to meet these clients’ needs.

What is vulnerability?

The Financial Conduct Authority defines a vulnerable consumer 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.” 

It is a wide-ranging definition that goes beyond poor mental health, ill-health and physical disability. It can be permanent or temporary, and there are lots of reasons why someone may be vulnerable.

The FCA has identified four main drivers of vulnerability:

  1. Health – physical disability, severe or long-term illness, hearing or visual impairments, poor mental health, addiction, and low mental capacity or cognitive disabilities.
  2. Life events – caring responsibilities, bereavement, income shock, relationship breakdown, domestic abuse, and retirement.
  3. Resilience – low or erratic income, over-indebtedness, low savings, and low emotional resilience.
  4. Capability – low knowledge or confidence in managing finances, poor literacy or numeracy skills, low English language skills, learning impairments, and no or low access to help and support.

These are challenges that many people face in their daily lives, even without the additional hardships caused by the pandemic. 

A widescale issue

Recent FCA research suggests that almost half of the UK adult population has, at some time or other, shown at least one characteristic of vulnerability. 

A research report by more2life - Who are you calling vulnerable? - suggests that the proportion of vulnerable clients in the equity release sector could be much higher.

Three quarters of people aged 65 and over would be eligible for enhanced terms if they qualified for an equity release plan which suggests at least some of them have illnesses serious enough to be considered vulnerable. 

However, when it comes to consumers themselves, it is likely that many might not be aware of their vulnerabilities, or do not want to admit to them. Advisers therefore face the difficult challenge of not only spotting vulnerability, but also dealing with clients who do not realise it applies to them.

Spotting the signs

The good news is that more advisers are recognising clients who are vulnerable and are actively looking for ways in which they can help them.

Two in five (39 per cent) advisers said they had seen an increase in vulnerable clients over the past 12 months – up from 30 per cent in 2019 – according to more2life’s report. 

However, while this demonstrates that advisers’ understanding of vulnerability is moving in the right direction, the figures are still low when compared with the FCA data. 

Therefore, it is important that advisers are knowledgeable of and consider the full range of vulnerability triggers, especially the more subtle signs, when dealing with older clients.

While advanced age or life-changing events, such as divorce or bereavements, will be obvious red flags for many, poor mental health or financial shocks may be less obvious signs that someone is vulnerable and could be missed by some advisers.