Simoney Kyriakou explores how the financial planning profession can identify and engage with the growing numbers of clients in vulnerable circumstances
Vulnerability is a significant issue. In February 2021, the Financial Conduct Authority (FCA) estimated the number of vulnerable adults in the UK was now at 27.7 million. This is more than one-third of the entire population of the UK (67.1m).
According to the FCA, there are four key drivers of vulnerability:
- Health (such as physical or mental conditions or disabilities).
- Life events (such as bereavement or divorce).
- Resilience (in terms of low income or indebtedness).
- Capability (such as low financial literacy or little access to support).
Given how varied vulnerability is, it should come as no surprise that financial advisers have cited increasing numbers of clients with vulnerabilities.
Tom Conner, director at Drewberry, says: “Firms have undertaken a lot of work on vulnerable clients. We now consider more than 25 different causes of vulnerability, as vulnerability isn’t always obvious.”
In 2021, the Chartered Body Alliance, which includes the Chartered Insurance Institute and the Chartered Institute of Securities and Investments, surveyed its members.
Of the 1,637 respondents, 61% had either directly or indirectly supported a customer in vulnerable circumstances. Many cited examples where vulnerable clients had experienced poor service.
For Mr Drewberry, the first step is to identify vulnerability and the second step is to establish with the client the best way to help them.
Alan Knowles, managing director of Cura Financial Services, which specialises in providing access to insurance for people with disabilities or existing conditions, says a key way to make sure clients in vulnerable circumstances don’t slip through the net is training.
A good start is to speak with your firm’s compliance department to get up-to-date guidance and education on vulnerability. “The next step is to look further afield,” he says, highlighting the training Cura has done with Purple, which provides webinars and bespoke training on vulnerability.
Mr Knowles adds: “Vulnerability processes should be at the heart of any financial services firm. There are some clever pieces of software that can analyse phone calls and flag potentially vulnerable customers.”
He says these can provide a “good monitoring and backup tool”.In terms of monitoring, one way would be to create a vulnerability register and adopt measures such as ‘tell us once’.
Mr Knowles says: “Every firm should have a vulnerability register, monitored by senior, trained staff. Vulnerability doesn’t mean we shouldn’t help the customer; it just means we become more aware of the potential harm they could be susceptible to and prevent this.”
But Sarah Lord, president of the PFS, thinks that while a register could seem like a good move, she anticipates “challenges in implementing it”.
She explains: “Many individuals do not recognise they are vulnerable, or are reticent to admit that they are. Also, accessibility to the register would need careful consideration and monitoring, otherwise it could just form a database for the unscrupulous to prey on.”
Sir Johnny Timpson – recently knighted in the New Year Honours List 2022 for his work on improving access to insurance for people with disabilities – has been encouraging companies to do more to improve their services and thinks a register would help deliver better customer care.
He would also like companies to adopt the ‘tell us once’ model. For example, someone who is bereaved should not have to repeat the same thing every time they interact with a company.
Mr Timpson commends the life insurance sector for providing bereavement support to clients, but thinks this should be “best practice across all sectors”.
More steps needed
Ms Lord believes adviser awareness of vulnerability has improved, particularly during the pandemic.
She says: “We have made significant strides in our approach to advising vulnerable individuals, with significant investment in training and improvement to advice processes to identify and record vulnerable clients, but as with everything, we can always be striving to do more.”
As far as Mr Timpson is concerned, while advisers have stepped up to the plate, financial services providers have generally fallen short.
He says: “We have had Treating Customers Fairly since 2006 and if we had been putting this in place properly, and done our duty as we should have, then we would not have an issue. Clearly, we in financial services should take a good look at ourselves, because there have been failures in the past 15 years that have been identified by the regulators.”
Therefore, Mr Timpson says firms should go above and beyond in the way they approach vulnerability.
Ms Lord applauds the FCA’s 2021 vulnerability guidance and various communications that have helped provide clarity around expectations for ensuring vulnerable customers are treated fairly.
However, she adds: “One challenge when dealing with vulnerable customers is getting them to recognise they are vulnerable and what, if any, interventions and actions would be appropriate to help them protect their position and get positive outcomes.”
She would like to see the regulator focus more on “lived experiences” such as periods of illness or disability, as well as intersectionality – whereby someone is affected by more than one of the many factors affecting vulnerability.
Ms Lord says this would help avoid “blanket labelling” and would refine definitions of vulnerability. Ultimately, this would help deliver better services to clients.
Simoney Kyriakou is senior editor of FTAdviser