How we identify vulnerable clients and why it matters?

Catherine Alexander
Partner

A vulnerable customer is defined 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.

Vulnerability plays a significant role in ensuring the fair treatment of all customers, identifying vulnerable customers allows for the appropriate response to meeting their needs and implementing processes to support them. This knowledge allows firms to develop a culture that aligns with the principles of protecting vulnerable customers.

Vulnerability may be caused by a number of factors, broadly categorised as follows:

Health
Having a condition or illness that affects the ability to carry out daily tasks.

Life events
This could include bereavement, job loss, divorce or retirement.

Resilence
Having reduced ability to withstand financial or emotional shock.

Capability
Low confidence in managing money/financial matters. This would include low capability in areas such as literacy and numeracy.

in identifying vulnerability, it is important to take the time to get to know each customer and ask the appropriate questions. When getting financial advice, it isn’t a case of ‘one size fits all’ and although you may think your adviser is asking an awful lot of questions, it all helps to get an accurate picture of a customer’s circumstances and shapes the advice provided. As advisers, our job is to ensure that every customer is treated fairly, and that means taking into account anything that may have the potential to cause harm. Some examples of disadvantages vulnerable customers may be suseptible to include:

• Having elevated stress levels.

• Feeling increased time pressures due to additional responsibilities.

• Being pre-occupied.

• Lacking perspective, e.g., experiencing new situations.

• Changing attitudes towards taking risks.

If a firm understands the potential for these harms, the appropriate support and procedures can be put in place. For example, where a customer is experiencing high levels of stress and/or time pressures, it can make it difficult to take in new information. Sending a customer lots of paperwork or emails with a lot of information would not be helpful and it is unlikely the customer would be able to make an informed decision. Therefore, it would be a good idea to meet the customer’s needs in other ways, making the information more accessible, a customer may like to have a face-to-face meeting to go through paperwork, or prefer to discuss advice over the telephone.

Your adviser is there to support you on your financial planning journey, not simply to action transactions. You should always have the facility to ask questions and take the time to consider any financial decisions. Vulnerability is not a static condition, anyone may become vulnerable, and it should be integral to any firm working in a financial advice capacity.

This article isn’t personal advice. If you’re not sure whether a course of action is right for you, ask for financial advice.