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Vulnerable Clients - practical steps for financial advisers

There are three key areas that advisers and adviser firms should consider.

Vulnerable Clients - practical steps for financial advisers

by
Louis Coke

in Features

31.07.2019

At the core of any financial services business should be the guiding principle to act in the best interests of your clients. Aside from being obvious good practice, this is also a regulatory requirement and serious issues have been highlighted in this area by the Financial Conduct Authority (FCA). In the FCA’s 2015 Occasional Paper on vulnerable clients problems were identified at every stage of the client journey. Policy and systems design failings were cited, alongside a lack of sufficient staff training and ineffective approaches to dealing with customers.

Having recognised this weakness, the industry has been working hard to catch up. Training has already vastly improved in this area, with dedicated modules such as the CISI’s ‘Vulnerable Clients’ now available for member firms to use.

Before we cover the practical steps for advisers, we must first consider what constitutes a vulnerable client. The FCA defines a vulnerable client as someone who ‘due to their personal circumstances, is especially susceptible to detriment, particularly when a firm is not acting with appropriate levels of care’. This regulatory definition can lead to quite broad interpretation, and a tick-box exercise will never provide an advisor with sufficient detail to allow them to protect and to adequately serve a vulnerable client. It is important to note that this status will include both clients who are what we might consider short-term vulnerable (e.g. recently divorced or bereaved) and long-term vulnerable (e.g. illness, dementia). In the retail client space we are in the very fortunate position to be entrusted with often a significant amount of a client’s wealth and as such, it is pivotal that we can accurately judge whether they could be deemed vulnerable. 

There are three key areas that advisers and adviser firms should consider:

  • Educate staff - CPD modules, internal training, external training, circulation of FCA papers and sharing good ideas across the organisation. Identifying vulnerability is a good first step, however the greater challenge can often be around deciding what practical steps can be taken to ensure vulnerable clients are appropriately serviced. You may well find that staff members have friends or family who would be classed as ‘vulnerable’ and therefore are able to offer first-hand experience.
  • Robust systems for recording vulnerability - knowing which of your clients may be considered vulnerable is a good start, but you must then ensure your firm has a way of recording this information so it can be used. For example, when a client calls the office or a meeting pack is produced, could there be a marker on the file to clearly indicate vulnerable status?
  • Flexible processes when catering for vulnerable clients – as we learn more about the broad range of clients who may be considered vulnerable, we find that they often need to be serviced in slightly different ways. For example, we may need to send letters in larger type or perhaps change the language used to remove jargon and explain investment terms in more detail. We might also volunteer the idea that a trusted family member or friend be present at annual review meetings.

I hope this article is a good high-level guide for advisers as to what they should consider when dealing with those who may be considered ‘vulnerable’ and offers some useful, practical steps firms can take.

Further resources can be found below:

FCA Occasional Paper No.8 – Consumer Vulnerability

PFS Good Practice Guide: Meeting the needs of vulnerable clients

Just Technical Bulletin – How to identify vulnerable clients

 

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