"Firms are either relying too heavily on their clients to share their vulnerabilities or are expecting their advisers to consistently spot them through face-to-face interactions."
With nearly a year having passed since Consumer Duty came into effect, we regularly hear how pleased firms are with the interventions they now provide for their vulnerable clients. New policies have been introduced and training has been delivered for employees, empowering advisers to provide better support than ever for those who are struggling.
This is all very encouraging, and while these efforts certainly shouldn’t be diminished, on their own they’re nowhere near enough to solve the vulnerability puzzle.
Because with evidence suggesting financial advisers are only identifying one-in-four vulnerable circumstances, it’s clear that there are still some issues here.
For us, the fundamental issue we are seeing right now, is around vulnerability identification.
The weak link in the chain; identifying vulnerability
With the amount of work that has been put into improving support for vulnerable clients, one would hope that the same care would also have been given to ensuring these clients are correctly identified in the first place. Firms might even believe they’re doing a good job of identification. Regrettably, however, this is rarely the case. When advisers are solely relied on to spot the signs of vulnerability, we’re seeing that only one-in-four cases are actually identified. This is why the quality of a firm’s interventions for vulnerable clients is never enough on its own. It really doesn’t matter how good the support on offer might be, if vulnerable clients aren’t even being spotted in the first place these policies are never put into action.
What, exactly, is going wrong here? Why are well-intentioned advisers – who clearly care about their work and their clients – failing to identify so many of their most vulnerable clients? And what can they do to improve the identification process?
The pressure on advisers
There are a few different reasons that might explain why the process of identification isn’t working as it should, but two of the most pressing are that firms are either relying too heavily on their clients to share their vulnerabilities or are expecting their advisers to consistently spot them through face-to-face interactions. Of course - neither of these approaches are reliable enough.
While financial advisers will mean well, the simple truth is that they aren’t trained mental health professionals, with most lacking the clinical expertise to recognise the subtle signs of vulnerability. Some may assume that financial vulnerability is determined simply by how much money a client has in the bank, but this would be a massive misconception. Because wealth is never an insulator against vulnerability. A wealthy individual can still be at risk of a health event, such as a cancer diagnosis, or a life event, such as the death of a loved one. A presumption like this doesn’t even scratch the surface of the complex nature of vulnerability, meaning that not only is it categorically untrue, but if left unaddressed it will cause scores of vulnerable clients to go unidentified.
As for the idea that clients might share their vulnerabilities themselves, it’s entirely possible that they might not even be aware they’re at risk. Just as a financial adviser may lack the clinical expertise to connect a change in social circumstances with financial vulnerability, so too will the average client. We should also consider the possibility that those who are aware that they are vulnerable may not want it to be known. There’s still a very real stigma surrounding the prospect of being vulnerable, and a sense of shame that causes people to shy away from discussing it. They present an image to the world of who they are and admitting the truth of their situation can be a real struggle. This means that relying on clients to be open about a potential vulnerability isn’t a fool-proof plan either – not by a long shot.
There are plenty of firms attempting to rise to this challenge with new policies across their organisations and hours of vulnerability training for their advisers.
Both are undoubtedly worthwhile. Training, for instance, can help advisers to become more aware of their own cognitive biases, and to reduce the impact of such preconceptions as wealth staving off vulnerability. It can also help them to more thoroughly understand the FCA’s four key drivers of vulnerability; health events, life events, resilience and capability. As for reviewing the firm’s policies, this can ensure there are procedures in place to make identification more consistent, and as a result more successful. It can also help to create safe, non-judgemental environments in which clients are more likely to speak openly about their circumstances and disclose when they’re struggling.
But while these are important considerations, they’re ultimately worthless without the right identification process. What we’re seeing is that most processes are based on what to do if someone is vulnerable and less around how to identify vulnerability beyond some basic questions. What advisers really need is the means to systematically identify signs of vulnerability – to know that they’re getting it right every time – and the only way for that to truly be achieved is for every client to undergo a specialist assessment.
How to identify vulnerability systematically
Combining clinical expertise with hard data, an online assessment is easily deployed and removes the bias and subjectivity that would inevitably be a factor with a face-to-face assessment. Only then can advisers ensure that all vulnerability drivers are consistently in scope across an entire client base.
A digital assessment, capable of accurately identifying financially vulnerable customers, removing subjectivity from the process and ensuring consistency across a whole client base, is arguably the only way to ensure all vulnerability drivers are constantly in scope. By combining clinical expertise with hard data, they’re able to reassure firms that their systems and controls will adequately meet the scrutiny of regulatory requirements. Perhaps most importantly, however, they remove the need – and indeed the pressure – for those offering finance to correctly identify vulnerability with only their own insight.
Identification is by far the most important part of supporting a vulnerable client – without it the rest of the process is, quite frankly, worthless. And yet, it’s the part that so many advisers are struggling with. I would urge firms to work on getting identification right up-front, by putting tools in place that systematically checks every client for signs they may be at risk. If they can get this bit sorted at the start, the rest will flow from there, plus the investment that’s being put into training and policies will be money well spent.
