Financial Vulnerability Taskforce publishes ‘good practice’ guide

11 April 2022

The Financial Vulnerability Taskforce has launched a ‘good practice’ guide for advisers on how to deal with the pitfalls of sudden wealth or unexpected wealth transfer.

The FVT said the challenges created when receiving a sudden windfall, particularly among people already vulnerable or not used to dealing with large sums of money, are often overlooked.

The guide is designed to help advisers recognise and consider how sudden wealth can impact their clients and provide guidance on how to flex the advice process in circumstances.

While advisers are used to dealing with varying levels of client vulnerability, including major life events such as poor health, divorce or loss of mental capacity, the FVT warns that sudden wealth can also place people in a detrimental position or exacerbate an already vulnerable set of circumstances.

Robin Melley, chartered financial planner and author of the new guide, said: “It needs to be borne in mind that professional advisers are used to dealing with large sums of money but many people aren’t. It is therefore important to have empathy and put yourself into the shoes of the people experiencing sudden wealth.”

The FVT, which was established to develop greater understanding and good practice around consumer vulnerability, identified various pitfalls that sudden wealth clients have encountered. These include sharing news of their wealth with others, jeopardising their anonymity and potentially leading to the person becoming a victim of fraud, scams and financial abuse. People may also feel compelled to promise or make gifts without understanding the ramifications.

Some people will fail to put their money in a safe space, unaware that high street banks and building society deposits are only protected up to the first £85,000 per account holder under the Financial Services Compensation Scheme.

Melley said many people who come into sudden wealth may also not be used to dealing with investments and having a relationship with a financial adviser, with little understanding of the issues or opportunities available.

Melley explained: “There can also be a higher degree of ignorance and cynicism about taking professional advice. There can be a tendency to lack understanding of the value of advice and what a reasonable fee would be. Also, there can be a lack of understanding of which type of professional advice they need, is it financial planning, financial advice, investment advice, legal advice or tax advice?”

To complement the adviser guide, the FVT has also launched a consumer-facing guide for advisers to give to their clients or add to their website as an aid to help them understand some of the difficulties they might face.

The FVT said the guides have been published in line with the Financial Conduct Authority’s expectations of dealing with vulnerable circumstances and consumer duty.The FVT said the very nature of vulnerability demands a holistic and often a multi-disciplinary approach to achieve the best possible outcomes for clients.

Melley said: “To provide a safe pair of hands, it is vitally important that you equip yourself with the technical knowledge or be willing to refer clients if you haven’t, to deal with these special issues, particularly where you are dealing with highly vulnerable people, such as minors, frail elderly and those lacking mental capacity.

“However, it’s not just about technical competence, dealing effectively with sudden wealth clients who are invariably vulnerable at least to some degree, it is the intangible skills that play such a crucial role in helping people to achieve good quality outcomes.”

The guide can be downloaded from the FVT website

[Main image: maia-habegger-8SpjPrQDw_Q-unsplash]

Professional Paraplanner