TECHNOLOGY IS MAKING IT EASIER FOR ADVISERS TO IDENTIFY AND HELP VULNERABLE CLIENTS

Tim Farmer, Co-founder and Clinical Director, Comentis

 

With the Financial Conduct Authority (FCA) estimating that one in two adults could be at risk of financial vulnerability[1], chances are that most financial advisers have already assisted such a client.

It may have been that their vulnerability was evident and as such, advisers were able to structure and tailor their advice accordingly, or it could be that the adviser was unaware of their situation and in hindsight could have handled things differently. Helping and doing what is right by a client comes naturally to many financial advisers, but when it comes to making financial decisions, vulnerable clients often require an extra layer of assistance and care.

It is only in the last couple of years that the issue of spotting and helping vulnerable clients has become a priority within financial services. As a result, the most challenging part of assisting a client can often be recognising which ones are potentially most at risk.

 

Recognising a vulnerable client

The fallout from the financial crisis, combined with the devastation caused by Covid-19, has brought the needs of financially vulnerable clients to the forefront.  This issue was highlighted further still in February this year, when the regulator released advice to firms on the fair treatment of vulnerable clients.

In its guidance, the FCA defines a vulnerable customer as someone who, “due to their personal circumstances, is especially susceptible to harm – particularly when a firm is not acting with appropriate levels of care.”[2]

According to the regulator, some common characteristics of vulnerability include someone in poor health – such as cognitive impairment, a client who has experienced a life event such as a new caring responsibility, or someone who has a low resilience to cope with financial or emotional shocks and low capability, such as poor literacy or numeracy skills.

While a physical disability might be an obvious risk factor, other characteristics may be less detectable. Something that can also make it hard for advisers to identify such clients is that some may wish to mask their situation or not believe themselves to be vulnerable. As such, the regulator is calling on firms to understand what characteristics of vulnerability are likely to be present in their target market or customer base.

For example, a firm that advises on investments and pensions might have an older customer base, so common characteristics of vulnerability may involve health and life events associated with old age. Notably, in its guidance to firms, the FCA advises against openly referring to such clients as vulnerable, however, as they may not want to be given this label.

 

The importance of a robust assessment

According to the FCA’s October 2020 Financial Lives coronavirus panel survey, the number of adults with characteristics of vulnerability increased by 3.7 million to 27.7 million between March and October 2020 – accounting for 53% of all adults.[3]

Sadly, the regulator says that it has seen clear examples of firms failing to consider the needs of these customers, leading to harm being caused. So, while firms might already believe they are doing all they can to help such clients, there is still more to be done.

But what can advisers do to ensure they are treating their clients correctly? The first step for any adviser is to ascertain which clients are potentially vulnerable. The spectrum of financial vulnerability is wide and risks being open to interpretation – meaning that what one adviser classes as vulnerable, another may not.

This is where technology can help, with digital platforms like Comentis now seeking to remove these inconsistencies. By digitalising these assessments, a client’s vulnerability can be easily identified by combining the latest technological innovations with world-class clinical expertise from mental health experts and psychologists.

For advisers, correctly identifying a vulnerable client will not only lead to them receiving the proper support but will also create a stronger client/broker bond. Digitalising the process also ensures that everyone in the firm is on the same page when it comes to recognising the signs and characteristics of vulnerability.

As more clients potentially fall into this category, advisers will need to demonstrate to the regulator that they have considered and recognised their needs, which may include providing evidence that shows why a client may not have been deemed vulnerable.

In today’s blame and mis-selling culture, brokers need to be vigilant, and failure to identify vulnerable customers represents a considerable risk for firms. Technology can now help to mitigate this risk significantly, however, by making it easier than ever to identify – and help – those customers who may need some extra guidance and support.

[1] Guidance for firms on the fair treatment of vulnerable customers | FCA

[2] Guidance for firms on the fair treatment of vulnerable customers | FCA

[3] Financial Lives 2020 survey: the impact of coronavirus (fca.org.uk)

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