Vulnerable clients are a key area of concern for the Financial Conduct Authority (FCA). So, advice firm need to ensure advisers and paraplanners have the skills to identify vulnerability and deal with vulnerable clients. Richard Cooper examines the FCA’s guidance and outlines how to identify the skills required.
Old hands on a person’s lapIn February 2020, 46% of UK adults – that’s 24.1 million people – had characteristics of vulnerability, according to the FCA’s Financial Lives 2020 survey.
By October 2020, this had grown to 53% (27.76 million) identified as being at greater risk of harm due to the pandemic and its effect.
What is the FCA’s definition of a ‘vulnerable customer’?
In February 2021 the FCA issued FG21/1 Guidance for firms on the fair treatment of vulnerable customers to support advisers.
The guidance 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”.
Advice firm professionals need to be aware of the many situations and circumstances that may lead to a client or potential client being or becoming vulnerable.
What are the four key drivers of vulnerability?
Crucially, all clients are at risk of becoming vulnerable. The FCA have identified four key drivers that may increase the risk of vulnerability:
• health conditions or illnesses that affect the ability to carry out day-to-day tasks
• major life events, such as bereavement or relationship breakdowns
• resilience levels, that is, when a clients can’t withstand financial or emotional shocks, and
• low knowledge of financial matters or low confidence in managing money.
The FG21/1 guidance requires financial advice firms to ensure:
• all relevant staff understand how their role affects the fair treatment of vulnerable clients, and
• frontline staff have the necessary skills and capability to recognise and respond to a range of characteristics of vulnerability.
How do you know a clients is vulnerable? And how can you help?
Advisers and paraplanners are in a key position to be able to identify when someone is vulnerable or potentially vulnerable. This is where observation and good questioning skills will help you spot unusual behaviour as well as changes in personal circumstances.
Look out for physical clues as well as verbal ones in conversations with clients, such as:
• nodding without following what is being said
• seeing that a home is suddenly less well kept
• that the person is becoming forgetful, or,
• recognising the effects of bereavement.
If you are using technology like Microsoft Teams or Zoom or undertaking telephone appointments, you need to be extra vigilant. You can do that by listening more – and listening more carefully.
You’ll need to have the difficult conversations about the ‘what-ifs in life’. If Covid 19 has shown us anything, it’s that it’s better to have these conversations sooner – when clients can still make informed decisions – rather than later.
In some cases, you may find clients need support that is outside your area of expertise. So make yourself aware of local agencies and services that you can direct clients to if necessary.
You should also provide advice and plan ahead for the more frequent causes of vulnerability that may happen in the future to minimise their potential impact on clients.
