Why a dose of reality is needed for pensions planning

Post pension freedoms, in order for advisers to justify their fees they must assist their clients in grasping what the retirement income options open to them are and select the most suitable solution.

Rather than seeing their clients commit to an annuity, advisers are therefore facing longer relationships with their clients that last well into retirement.

For clients opting to remain invested or take tax-free cash or only partially annuitise their pot, it is vital they sit down again with their advisers to reconsider what they should do with their pots.

This means advisers are facing new challenges – they may increasingly have to handle clients with care needs or suffering from dementia.

This is why dealing with vulnerable clients has become a core focus for the Financial Conduct Authority (FCA) and advice firms need to make sure they have proper processes in place.

The big concern is self-harm, with people self-administering their own retirement planning, which could lead to catastrophic outcomes – Keith Richards

But how do you know if a client is classified as vulnerable?

James Dingwall, chief executive of Thistle Initiatives, said the first thing firms need to do is understand their current client base and what it looks like.

Advisers should try to identify where there may be customers who would fit into the definition of a 'vulnerable client', he said.

Quality of disclosure

• 52.9 per cent of firms had provided acceptable levels of disclosure, while 41.7 per cent had offered an unacceptable level of disclosure in terms of their stated charges and service provision, according to a review by the City regulator.

The FCA defines a vulnerable client 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.”

Mr Dingwall said: "There is still a perception that someone who is a vulnerable customer is someone who has a disability or someone who is very elderly, but it can take so many forms, such as mental illness.

"Therefore, it is really important that firms understand their client base, know how to identify any vulnerable clients and understand how to educate advisers to deal with them and bring them into the financial planning remit."

In 2015, the FCA issued an occasional paper highlighting concerns that financial services providers were not treating vulnerable customers appropriately. 

In this document, the FCA stated: "We want to help firms identify consumers in potentially vulnerable circumstances, and to attempt to describe what ‘good’ looks like in serving those consumers."

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