What to consider when advising potentially vulnerable clients

Supported by
Scottish Widows
twitter-iconfacebook-iconlinkedin-iconmail-iconprint-icon
Supported by
Scottish Widows
What to consider when advising potentially vulnerable clients
Photo via Pexels

The Financial Conduct Authority’s Financial Lives 2020 survey: The impact of coronavirus, undertaken in October 2020, revealed that more than half (53 per cent) of adults were displaying a characteristic of vulnerability, representing an increase of more than 3m since the pandemic began.  

In the past, the perception of vulnerability was narrow.

Sweeping judgements were made − often based on age − bypassing the many other reasons why some people should be treated with particular care, whether they are 31 or 91. However, times have moved on, and nowadays it is assessed across a wider range of factors.  

The FCA defines a vulnerable customer as someone who is particularly susceptible to harm, especially when a company does not act with the right levels of care.

Characteristics of vulnerability, according to the regulator, include poor health (encompassing mental health); challenging life events; low resilience to cope with financial or emotional shocks; and poor literacy or numeracy abilities.

You more or less need to start from the point that every client could be vulnerable until it is determined otherwise Tom Connor, Drewberry

The pandemic has, of course, been a challenging life event in itself. Research by Royal London, published in August this year, found that 15.9m people felt more financially vulnerable than they had before it began.  

Looking at the breadth of potential current vulnerabilities, Tom Conner, director at pensions, investments and insurance specialist Drewberry, says: “In the past, identifying vulnerable clients was based far more on physical factors, like age, hearing or visual impairment, whereas today the list of potential vulnerabilities is extensive.

"You more or less need to start from the point that every client could be vulnerable until it is determined otherwise.

“There is a duty of care to identify clients that could be vulnerable and to have the conversation about how advice is best provided to them. For example, we recently advised a client with hearing difficulties. The client said they usually conduct telephone calls using BT's Relay service, which converts voice to text, so we advised them via Relay and followed up with emails reconfirming everything that was discussed.”

A spectrum of risk 

It is also important to be aware that customer vulnerability can be an evolving situation, as Peter Hamilton, head of market engagement at Zurich, explains: “It’s not possible to identify vulnerable customers simply through a checklist or against specific criteria. Wellbeing can be seen as a spectrum of risk. 

“All customers are at risk of their wellbeing suffering and this risk is increased by characteristics of vulnerability related to their health, life events, resilience and capability.

"This can result in customers having additional or different needs and they may move up and down the risk spectrum, depending on their personal circumstances, at the time of interaction with us.

“For instance, a life event such as a relationship breakdown or bereavement may lead to further vulnerability, such as mental ill-health or low resilience. This may be made worse if the customer has low or limited capability to manage their finances.” 

Hamilton also stresses that it is important not to "badge" people: “While we refer to customers being in vulnerable circumstances, we don’t want to label customers as ‘vulnerable’.

"Instead, we focus on what harm or disadvantage customers may be vulnerable to and how we can support them.”  

Sensitivity is key, as Conner observes: “While there are factors that advisers need to look out for that could potentially make a client vulnerable, it doesn't necessarily mean the client is, in fact, vulnerable.

"For example, some older clients take great offence at being considered vulnerable.”

Getting cover

With so much emphasis on the needs of vulnerable consumers, is it now easier for them to get the cover that they need?

Conner says: “There have been some slight improvements over the past few years, but there is still a long way to go. 

“We've seen product development to cover more clients with diabetes and high BMIs, and clients with HIV may be accepted for life cover in the not-too-distant future. Hopefully there will be more progress in this area in the months and years to come.”

Some applicants may now also find it easier to get cover after making disclosures about mental health, as Chris Dunne, proposition manager at Scottish Widows, notes: “Through our work with Mental Health UK and from working towards the Association of British Insurers' mental health standards, we are able to offer standard terms to 85 per cent of these applicants.”

Conner says that the introduction of additional support services to policies has been beneficial for some vulnerable clients too: “This is a big and very welcome development over the past five years. 

“For example, it may be that a client’s policy has an exclusion for back pain or mental health but they can still make use of some of the additional benefits on their plan, such as remote physiotherapy or counselling.

"So, despite the exclusion, the additional benefits on the plan can still be used right away, adding immediate value for the client.”  

But there is more that providers could do, says adviser Phil Anderson of Phil Anderson Financial Services: “We had a client who had tried to commit suicide many years ago, who now can’t get insurance. 

"Instead of ruling them out altogether, there could be an exclusion on the basis that no payout would be made if they were to commit suicide, but that the policy would pay out if they had a heart attack, for instance. This all comes back to treating customers fairly.”

Fiona Nicolson is acting deputy features editor at FTAdviser