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How advice firms are dealing with vulnerable clients

16 October 2019

Vince Smith-Hughes, director of Specialist Business Support, looks at the results of a survey by Prudential into how advice firms assess and work with vulnerable clients.  

Prudential conducted adviser research in 2018 which included how they work with vulnerable clients, It generated some interesting statistics.

Nearly three out of four firms have specific rules for advising vulnerable clients, and half train staff to spot signs of cognitive impairment.

More than two out of five firms (43%) say they monitor for signs of unusual or concerning behaviour among clients, while 14% say they will refer clients showing signs of cognitive decline to specialist advisers.

More than a quarter (27%) of firms insist all clients aged 75 and over are seen with a third-party present, with 15% imposing a general rule that clients over 80 should have a third-party present.

These statistics are encouraging, but I think we all need to challenge ourselves as to where improvements can be made. The whole issue of later life planning is becoming more and more of an issue for advisers, as people live longer. Also, let’s not forget that following the introduction of pension freedoms, we’ve seen more people in drawdown, and many of these will stay in drawdown for longer.

Not just later life clients

Notwithstanding what I have just said, one common misconception is that people often think of vulnerable clients as those in later life. This, of course, is sometimes true, but there are many forms of vulnerability; let’s remind ourselves of the FCA definition: a vulnerable consumer is someone who, due to their personal circumstances, is especially susceptible to detriment, particularly when a firm is not acting with appropriate levels of care.

So, for example, someone who is in significant debt and therefore susceptible to situations that could boost their short-term cash flow at the risk of their long-term financial well-being, should clearly be regarded as vulnerable.

It’s also clearly (and rightly so) a major issue with the FCA. In guidance consultation GC19/3 issued in July, the FCA has asked the profession for feedback on proposed new guidance for the treatment of vulnerable customers.

Importantly, the FCA sees dealing with vulnerable customers as very much something that should be embedded in the culture of firms.

The draft guidance has three sections:

  • Understanding the needs of vulnerable consumers
  • Ensuring staff have the skills and capabilities needed
  • Translating that understanding into taking practical action

One particularly useful table from the document is under 2.7, and is replicated below. Importantly, though, the FCA reaffirms the point that the categories are not exhaustive or definitive.

Table 1: The four key drivers of vulnerability (the examples included in the table are not an exhaustive list)

To highlight the potential scale of the issue, the FCA references the financial lives survey from 2017, which indicates half of UK adults (25.6 million people) display one or more characteristics of being potentially vulnerable.

Given the length and breadth of issues around potentially vulnerable customers, the guidance does not provide a checklist of required actions, but rather provides options in which the principles can be adopted. A high-level view of an expected process from the same paper though is below.

I’d strongly endorse those who haven’t had the opportunity to look at this document, to do so, as there is a wealth of useful information here. It can be accessed here:

As I mentioned above, a client can be vulnerable for all sorts of reasons. However, one of the more common situations many advisers will have faced, is unfortunately when they are dealing with clients with dementia. This can be extremely difficult for all parties. It’s for this reason we were delighted to sponsor the My Care Consultant guide entitled Dealing with clients across the spectrum from Normal Cognitive Ageing through to Dementia – a practical guide for financial advisers.

For those looking for further information for dealing with vulnerable customers, the Personal Finance Society has produced an excellent guide, which can be accessed here:

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