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Advisers underestimating number of vulnerable clients  

Advisers underestimating number of vulnerable clients  
 

A vulnerability gap has been identified in the advice space, with advisers underestimating the number of clients that could qualify as vulnerable under FCA guidelines. 

On average, advisers estimated 18 per cent (11.7mn) of clients would qualify as vulnerable, according to research released today (July 7) by Technical Connection, part of St James's Place.

However, the FCA has previously said the number of UK adults considered to be financially vulnerable is closer to 28mn, showing there to be a vulnerability gap in the sector. 

The study of 100 advisers found this was despite positive engagement by advisers with FCA guidelines.

According to the research, 94 per cent of advisers are aware of the regulatory responsibility on firms to address the issue of financially vulnerable clients and 74 per cent said they think the measures are fair. 

There is also evidence to suggest that advisers are overconfident in their ability to deal with vulnerability issues, with advisers on average rating themselves 7 out of 10 in terms of vulnerability readiness, with 42 per cent rating themselves as eight or higher out of 10.

Technical Connection’s director, Edward Grant was not surprised to see that the industry views vulnerability as such an important issue but said as vulnerability is such a broad spectrum, there is a lot of work left to be done.

“A lot of people always thought vulnerability was the older client, but there is also mental health to be considered and even young people or lottery winners are vulnerable, for example,” he told FTAdviser. 

In Grant’s view, this is not an issue of regulation, it is one of implementation. 

He floated the idea that soft skills should be better built into the diploma to support what the FCA are trying to do around vulnerability.

In practical terms, the hardest thing for companies is the process, and money is often needed to improve back office processes, according to Grant. 

The report included a number of best practice tips for firms to improve their vulnerability readiness, including things such as carrying out a vulnerability audit, conducting a vulnerability gap analysis and appointing a vulnerability champion at a senior level.

Oakmere Wealth Management’s managing director, Carla Brown said it is essential to have formal processes in place for dealing with vulnerable clients. 

She said: “Not only is it the right thing to do as a responsible business, but it also makes good commercial sense. By failing to identify and work with vulnerable clients in the right way, you run a reputational risk. 

“Get it right and it can positively impact your relationship with a client and, in turn, create a strong advocate for your business. When clients find themselves in a vulnerable situation, this is your opportunity to really make that difference and be the safe pair of hands they need.”

In the past six months, only half of advisers have formally carried out any work to identify which of their clients may be potentially vulnerable.