" Ensuring vulnerability is managed correctly is not only the right thing to do for clients, or to ensure you meet regulatory requirements, but it is also essential for your professional indemnity provider too. "
It has never before been more crucial to address client vulnerability effectively. 31st July 2024 marks a year since Consumer Duty came into effect. Ensuring vulnerability is managed correctly is not only the right thing to do for clients, or to ensure you meet regulatory requirements, but it is also essential for your professional indemnity provider too. They need to know what measures you have implemented to safeguard both your clients and the advisers themselves too.
Of course, we understand that identifying a vulnerable client is much easier said than done. After all, clients rarely consider themselves vulnerable, and those who do may want to remain under the radar, using surprisingly effective coping mechanisms to hide their vulnerabilities. Even for trained clinical experts, identifying someone at risk of a more cognitive vulnerability can be far from easy, but firms should have their processes in place all the same, not only to evidence their assessment in the event of a claim, but to also demonstrate to the regulator that they have been proactive in implementing better procedures.
So, what exactly is a PI insurer looking for when it comes to tackling vulnerability? What are firms are getting right, and where is there still room to improve? I ask Richard Turnbull, managing director at Collegiate Underwriting, the sole constant PI provider in the IFA market for the past 30 years, about the three things he – as a professional indemnity insurance provider – most wants to see from his insureds.
1. Identifying vulnerabilities
Turnbull agrees that there are a worrying number of vulnerable clients who need support and who are going unidentified. In fact, evidence suggests that financial advisers are only identifying one-in-four vulnerable circumstances right now.
Two of the most pressing reasons for this are that firms are either relying too heavily on clients to share their vulnerabilities themselves or are expecting their advisers to consistently spot them through face-to-face interactions. Neither of these approaches will suffice. After all, anyone can be vulnerable at virtually any time. A change in circumstance, whether it be a divorce, a new baby, an illness, or a bereavement, could easily leave someone at risk. And, of course, on the contrary, some advisers may assume that just because someone is old, they are more vulnerable – which is not the case. Whilst advisers mean well, most aren’t trained to have the clinical expertise to recognise the subtle signs of vulnerability. As for the idea that clients might share their vulnerabilities themselves, it’s entirely possible that they might feel too ashamed to come forward or might not even be aware they’re at risk. Relying on clients to be open about a potential vulnerability is not sufficient so ensuring all relevant and frontline staff have the training and support to identify vulnerabilities will be crucial. Obviously, we understand there is an argument that to some degree, customers have to take some responsibility for their own choices, but what’s important is recognising that vulnerabilities limit a client’s ability to do this, and that is what firms can try and protect themselves against.
Firms need to proactively meet this challenge with new policies and rounds of vulnerability training for their staff. Systematic identification of vulnerability is key to getting it right every time – and the only way for that to be achieved is for every client to undergo a specialist assessment. Advisers will therefore need to combine clinical expertise with hard data, ideally though an online assessment, to remove the bias that inevitably affects a face-to-face assessment.
2. Evidence
Evidence is crucial when it comes to PI. Client files are an invaluable and essential part of the advice process – they demonstrate the advice that has been given in the past, they provide support for future advice, but most importantly, PI insurers use a client file to defend a claim. If a vulnerability assessment has been conducted, evidence of the assessment along with the results should always be documented and retained in the client file, regardless of whether that client has been found to be vulnerable or not. Unfortunately, with claims often relating to vulnerable clients, it is not enough to simply say the assessment was carried out without demonstrating that it was and how the adviser came to their conclusion.
This is a crucial part of the process – it offers firms protection in the event they need to revisit a previous advice decision, but also equips advisers with the necessary evidence to demonstrate to the Financial Conduct Authority (FCA) and the Financial Ombudsman Service (FOS), that the procedures implemented are being followed.
This is an area in the PI market where many are falling short according to Collegiate. Turnbull talks of certain firms failing to record any kind of evidence that they have followed a formal procedure and explains that he has seen some circumstances where advisers have demonstrated to insurers that procedures are in place to identify vulnerable clients but are then failing to follow these procedures at the time of advice. Neglecting this work hurts everyone involved.
Turnbull says: “When all’s said and done, having a policy alone isn’t enough if it becomes evident that your advisers don’t follow it. It will not help in the defence of a complaint, and it certainly will not help should the regulator intervene. If an assessment isn’t documented, an adviser can’t prove it was actually done, and insurers can’t defend an action that was taken off the back of it.” With that in mind, if a firm wants to protect themselves against the regulator and complaints from their clients, they must be prepared to provide evidence that a comprehensive vulnerability procedure is being routinely followed every time and with every client.
3. Conduct assessments routinely
Turnbull explains that assessing a client for signs of vulnerability shouldn’t be treated as a one-off task. After all, “vulnerabilities aren’t static. They come and go, changing guises regularly.”
With the implementation of Consumer Duty, advisers are under increasing scrutiny concerning annual reviews, fees, later life lending and retirement income advice.
Turnbull suggests that good practice for advisers would be to conduct an initial assessment every time a firm onboards a new client, and - as a minimum - reassess during each annual review. “It’s important to reiterate that it’s the “unobvious” vulnerability that a robust vulnerability assessment will identify. Of course, additional screenings can also be carried out on a more ad hoc basis if the adviser believes there is a need for it.” Turnbull contends that it is prudent, for instance, to conduct an assessment prior to a significant financial transaction or investment. It can even be done if the adviser simply feels something might be wrong. One recent case cited by Turnbull saw an adviser discover that their client had just become a carer for their son. The client didn’t think it meant they were vulnerable, but a change like this is a major life event, with the potential to significantly affect that individual’s resilience.
Firms should implement a systematic approach to vulnerability and take care to review their policies regularly, ensuring they’re up to date. This is something most claim they are already doing, but the truth is, we aren’t seeing any sign of procedures changing, with the majority following the exact same recommended template.
The firms that regularly conduct assessments and review their procedures will be the ones to benefit the most when it comes to protecting their business – it’s a clear indication for any insurer the firms who are taking their vulnerability duties seriously.
Looking to the future
Richard Turnbull and I both agree that the question of vulnerability isn’t going away. If anything, it’s only going to become more of an issue, and as our population continues to age and the regulator continues to focus on it so heavily given vulnerable customers are deemed more susceptible to harm, the tick-box approach that many advisers have taken until now won’t suffice.
Having all clients undergo an assessment – one which removes subjectivity from the process and provides consistency across a whole client base – is arguably the only way to ensure all vulnerability drivers are constantly in scope, ensuring the best result for the client and protecting the firm if a client lodges a complaint with FOS. If a firm can button down its vulnerability process, and provide solid evidence of it when a PI insurer inevitably asks, they will be in the best position to support their clients.
It is important for firms to understand that the impact of “negligence” on a vulnerable customer is likely to be greater than for other consumers so protecting against these outcomes in the event of complaint is in the firm’s interest. With this improved approach, advisers can ensure they are supporting their most vulnerable clients, providing the best possible advice, and meeting their own regulatory requirements. With the right assessment technology in place, they can do just that.
