Are advice firms giving vulnerability the attention needed, in particular given its prominence under Consumer Duty? Grant Callaghan, chartered technical specialist at The Verve Group believes there are areas firms can improve on.
We’ve all heard of ‘vulnerable clients’ and ‘vulnerability’ in the context of advice but are we all doing everything we should be, particularly against the backdrop of the Consumer Duty? I think there are a few areas we can improve on, and this is based on identifying the importance of vulnerability and where it applies, and how to act once vulnerability is identified.
Historically, client vulnerability was something that only applied by association to clients in poor health or those over a certain age threshold. The FCA has been clear that most people can at some stage in their lives be experiencing a temporary vulnerability (if not permanent). In fact, the Financial Lives Survey found that 47% of adults in the UK showed one, or more, characteristics of vulnerability.
Vulnerability can be triggered by personal and financial circumstances as well as more obvious factors such as health, disability and the ailments that come with advanced age. Whether you deal with a predominately young client base or a more financially resilient high net worth client base, it is likely that a portion of these clients will fall into vulnerability categories while you work with them. As a result, it’s important to look at why assessing and managing vulnerability is important, and how it can be done effectively and compliantly. The FCA define the four drivers of vulnerability as; Health, life events, resilience and capability.
The why
Vulnerability is one of the features of advice that can turn an entire case from ‘suitable’ to ‘unclear’, or worse. No matter how good the advice appears to be, or how much it matches up with the client circumstances, if the client was judged to be vulnerable and there is no evidence of steps taken of how to address the vulnerability (and potentially change the advice process), they may well be considered right to complain about the advice.
Here’s an upheld case from FOS highlights this. The case is around the recommendation to purchase a long-term care annuity for an individual in care, and most of the complaint is around how the client was managed regarding his vulnerabilities. If you don’t read through it, the summary is that there is less emphasis on the underlying advice and more on the ‘process’ of the advice.
This case predates Consumer Duty, which through the ‘Consumer Support’ outcome now strengthens the need to consider vulnerability. The outcome specifically says ‘include those with characteristics of vulnerability’ so if you don’t meet the standard of assessing and managing vulnerability, you are now also falling foul of Consumer Duty. In addition to Consumer Support, ‘avoid causing foreseeable harm’ is a key cross-cutting rule that needs to be considered.The vulnerability guidance and Consumer Duty go hand in hand.
The how
So how do we deal with vulnerability? It’s probably better to start with how not to deal with it, starting with identifying it.
Asking whether the client is vulnerable, or leaning on the client’s assessment of their vulnerability is ineffective for two reasons. The first is; the client will either not want to consider themselves as vulnerable, either due to pride or a belief in their capabilities, and secondly that it is not consistent with the FCA guidance that clients should not be told they are deemed vulnerable or asked whether they consider themselves vulnerable due to X, Y or Z.
The real skill in identifying vulnerability is to:
- Internally note any signs you have gathered from discussions/meetings/fact-finding that indicates some form of temporary or permanent vulnerability may apply.
- Document what in your process will help you manage or accommodate this vulnerability. How are you considering consumer understanding with clients who present characteristics of vulnerability?
- Follow through with this and record the steps you have taken within the file.
It is still extremely common, from what we see, for identification of vulnerability to be accompanied by an ‘offer to have someone else in the advice process’. This option can be useful, but it is limited to certain types of vulnerabilities and certain client scenarios. It should not be a catch-all option to use when your vulnerability box is ticked yes.
Instead, there are other ways of accommodating vulnerability:
- Extending the time between decisions/meetings. Noting that you are giving the clients more time between actions is a practical accommodation for certain vulnerabilities.
- Changing the way you present information. Using braille, different font/text or even language to accommodate various vulnerabilities.
- Other support options. Some vulnerabilities might be linked to the services of a charity and directing the client to these in between meetings or before any recommendation is given can evidence a real accommodation to vulnerability.
These are just three different ways you might accommodate vulnerability. In some circumstances, it may be that there is no real change to your process. If this is the case, you still need to have documented what happened during the advice process to evidence that the steps you took already aligned with the vulnerability you identified.
All in all, the client should feel you offered them a personalised service that made it as easy or low-stress possible for the reasons you have decided and documented internally. A client can easily go away not necessarily knowing that the journey was tailored around their specific vulnerability markers.
Don’t take this to mean that you shouldn’t discuss the reasons why you might change your process with your client if you must. An element of honesty will be needed at times, particularly with existing clients exhibiting temporary vulnerability.
This type of conversation could involve you saying ‘With what you’ve got going on now, it’s worth pausing on everything I’ve sent you and coming back to it when you can dedicate more time on it. We’ll hold everything here as it is and wait for you to get back in touch when the time feels better’.
Conclusion
Ultimately it is a very personal approach to managing vulnerability. Every client, and every relationship with that client, is different. The important part of all this is documenting, documenting, and documenting. If you need to change your approach to accommodate a client vulnerability, you want to show that you have done that.
Remember that vulnerability is not an ongoing feature of a client and someone deemed not vulnerable one year can easily be deemed vulnerable in the next year, or vice versa. It should therefore be an ongoing assessment that forms as big a part of your annual review process as charges and performance disclosures do.
The Verve Group offers free Consumer Duty resources, guides and templates as well as regulatory support for financial planning firms.
