Experienced Financial Planner Phil Billingham comments on client vulnerability challenges and shares some relevant ideas. 

On 26 January, INN8 – a South African Platform I'm very familiar with – held a round table event in the beautiful surrounds of the Steenberg Estate in Constantia, Cape Town, a country where I spend quite a bit of time.

The team from Perceptive Planning (we also operate in South Africa) were delighted to be participants, along with a range of local advisers.

One of the topics we discussed was Vulnerable Clients, especially in the light of the renewed attention recently to this area by the FCA, within the context of ‘Consumer Duty.

There were a number of points made, and important concepts to take away. The first was that many advisers still think ‘older clients’ when they hear the words ‘vulnerable clients’.

As the FCA paper FG21/1 (snappy title!) makes clear, all clients have the potential to be ‘vulnerable’, and vulnerability is linked to personal circumstances, not just medical conditions.

So we are dealing with scenarios where some of the conditions resulting in vulnerability are temporary and reversible, whereas others cause ever-worsening and permanent decline.

Indeed, FCA research – pre-pandemic – showed that 46% of adults display signs of vulnerability at any given time. This rose during the pandemic.

Fraudsters target the vulnerable – and so this rise in vulnerability concerns is borne out by a massive rise in investment scams, especially ‘romance’ scams and impersonation scams, for example. We have all probably been an attempted victim, or know someone who actually has been the victim of a scam.

As advisers we have a duty of care to protect our clients.

So we need to be able to recognise signs of vulnerability and have a process in place to mitigate as much harm as we can.

Step one is accepting the circumstances that make people more vulnerable.

Excluding the classic of dementia, many key life events are especially stressful. These include bereavement, redundancy, inheritance, divorce and retirement. Other common situations that can result in decision fatigue and impaired capacity include diagnoses of terminal medical conditions, addictions, going off medications for mental disorders and caregiving for someone with complex medical needs.

I think we can see where the 46% figure of adults displaying signs of vulnerability comes from, and the difference between temporary and permanent conditions.

Taking retirement as an example, it’s worth noting that a majority of the victims of pension scams have been middle age men. Not a demographic always associated with vulnerability, especially by themselves. In short, they think they know more than they do, and have access to money. They are almost ideal victims.

So the take away from step one is to internally flag up when a clients circumstances may place them at risk.

Step two is to mitigate those risks.

This will include:

• Advising clients not to make any major changes until things have settled down – the classic 6 month wait, as an example. This won’t work for everyone, but pausing and thinking is still useful.
• Defaulting to simple solutions that clients are more likely to understand. High complexity can trigger a capacity problem much sooner than a low complexity environment. Do we need all those credit cards / bank accounts / investment vehicles / logins?
• We monitor handwriting – Christmas cards and so forth – as deterioration in this area can be a signal of adverse changes.
• Most firms – all firms? – will also have good protocols in place to react to unexpected calls for money. This will include calling the clients in response to unexpected emails, for example.

And this is where it gets tricky…

All the experts in this field are clear as to the following:

1.     Just because the client wants to do something that makes no sense to us, does not mean they are vulnerable or have dementia. It is their money.

2.     ‘Competence’ is situational and can change – they may not be able to hold down a stressful job, but can still run a bank account, for example.

3.     We are not medically qualified to diagnose dementia, whatever our personal experiences.

4.     While our instinct may be to contact relatives or children, we are still bound by client confidentiality.

It’s not easy. There is a fine line to be trodden.

Of course, in an ideal world, we would all fix the roof before the rain sets in:

• Which means getting Lasting Powers of Attorney (LPA’s) in place for all clients upfront
• It would mean building proper relationships with children years in advance
• It would mean ensuring that all and any solutions put in place were simple – or at least no more complex than they have to be to do the job required.

This problem is not going away anytime soon. With increased complexity, and ever more ‘distance’ being enforced in the financial system – local bank branches are pretty much gone, for example – we are often the only people in their financial lives who can both notice and care if the client has become vulnerable.

That’s a tremendous responsibility, but possibly a massive benefit to our clients and their families.

• With special thanks to Dr Moira Somers of Money Mind and Meaning for her input and guidance

Phil Billingham FPFS CFP Chartered Financial Planner, Chartered Fellow (Financial Planning). He is a Financial Planner and a director of Perceptive Planning, a Chartered Financial Planning firm based in London and Essex. https://www.perceptiveplanning.co.uk/

Biography: Phil joined the industry in 1982 and is a past director of the Institute of Financial Planning (IFP) and the Society of Financial Advisers (SOFA). He is a past member of the Financial Planning Standards Board (FPSB) Regulatory Advisory Panel. He is a specialist in helping advisers cope with regulatory change and has worked with advisers, planners and regulators in the UK, Europe, USA, Canada, South Africa and Australia. Phil is an Associate of the Chartered Insurance Institute (ACII), a Fellow of the Personal Finance Society, a Certified Financial Planner (CFP), a Chartered Fellow – Financial Planning and a Chartered Financial Planner. Phil will be writing regularly for Financial Planning Today.