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Industry Voice: Dealing with vulnerable customers

Vince Smith-Hughes, Head of Business Development at Prudential
Vince Smith-Hughes, Head of Business Development at Prudential
  • Vince Smith-Hughes, Head of Business Development. Prudential,
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Vince Smith-Hughes, Head of Business Development at Prudential, looks at dealing with vulnerable clients, following some interesting adviser research.

Prudential conducted some adviser research in 2018 which generated some interesting statistics.

Nearly three out of four firms have specific rules for advising vulnerable clients and half of firms train staff to spot signs of cognitive impairment.

More than two out of five firms (43 per cent) say they monitor for signs of unusual or concerning behaviour among clients, while 14 per cent of firms say they will refer clients showing signs of cognitive decline to specialist advisers.

Twenty-seven per cent of firms insist all clients aged 75 and over are seen with a third-party present, with 15 per cent imposing a general rule that clients over 80 should have a third-party present.

These statistics are encouraging but I think we all need to challenge ourselves as to where improvements can be made. The whole issue of later life planning is becoming more and more of an issue for advisers as people live longer. Also, let's not forget that following the introduction of pension freedoms we've seen more people in drawdown and many of these will stay in drawdown for longer.

Notwithstanding what I have just said one common misconception is that people often think of vulnerable clients as those later in life. This of course sometimes true, but there are many forms of vulnerability, - lets remind ourselves of the FCA definition - A vulnerable consumer is someone who, due to their personal circumstances, is especially susceptible to detriment, particularly when a firm is not acting with appropriate levels of care.

So for example someone who is in significant debt and therefore susceptible to situations which could boost their short term cash flow at the risk of their long term financial wellbeing should clearly be regarded as vulnerable.

It's also clearly (and rightly so) a major issue with the FCA. In guidance consultation GC19/3 issued in July the FCA has asked the profession for feedback on proposed new guidance the treatment of vulnerable customers. Importantly the FCA see dealing with vulnerable customers as very much something which should be embedded in the culture of firms.

The draft Guidance has three different sections

  • Understanding the needs of vulnerable consumers
  • Ensuring staff have the skills and capabilities needed
  • Translating that understanding into taking practical action

One particularly useful table from the document is under 2.7, and is replicated below. Importantly though the FCA reaffirm the point that the categories are not exhaustive or definitive.

Health

Life events

Resilience

Capability

Physical disability

Caring responsibilities

Low or erratic income

Low knowledge or confidence in managing financial matters

Severe or long-term illness

Bereavement

Over indebtedness

Poor literacy or numeracy skills

Hearing or visual impairments

Income shock

Low savings

Low English language skills

Poor mental health

Relationship breakdown

Low emotional resilience

Poor or non-existent digital skills

Low mental capacity or cognitive disabilities

Having non-standard requirements such as ex-offenders, care leavers, refugees

Lack of support structure

Learning impairments

Table 1: The four key drivers of vulnerability (the examples included in the table are not an exhaustive list)


To highlight the potential scale of the issue the FCA reference the financial lives survey from 2017 which indicates half of UK adults (25.6 million people) display one or more characteristics of being potentially vulnerable.

Given the length and breadth of issues around potentially vulnerable customers the guidance does not provide a checklist of required actions, but rather provides options in which the principles can be adopted. A high level view of an expected process from the same paper though is shown below.

 

 

I'd strongly endorse those who haven't had the opportunity to look at this document to do so, as there is a wealth of useful information here. It can be accessed here

https://www.fca.org.uk/publication/guidance-consultation/gc19-03.pdf I

As I referenced above, a client can be vulnerable for all sorts of reasons. However one of the more common situations many advisers will have faced is unfortunately when they are dealing with clients with dementia. This can be extremely difficult for all parties. It's for this reason we recently sponsored a My Care Consultant guide entitled ‘Dealing with clients across the spectrum from Normal Cognitive Ageing through to Dementia - a practical guide for financial advisers'.  

For those looking for further information around dealing with vulnerable customers the Personal Finance Society have produced an excellent guide which can be accessed here.

https://www.thepfs.org/media/7774414/good-practice-guide-addressing-needs-of-clients-in-vulnerable-circumstances.pdf

 

For the latest articles from Prudential visit the Knowledge Library.

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