The Financial Conduct Authority expects all financial services providers to be mindful of a client's potential vulnerability and ensure good outcomes for them at all times, but this is easier said than done.
Spotting vulnerability can be tricky. Often clients may tell an adviser about a life event, but it might not be clear how they are affected by it – in fact, they might not be affected by it at all.
"Naturally we can have health events or life events, we can suffer an illness or become ill in some way... but it can actually have no impact on our day-to-day lives," says Steph Willcox, head actuary at Dynamic Planner.
"And if that's the case of course you're going to want to know about it as an adviser, but that's not going to automatically call that person vulnerable."
She says the key is to find out whether and how an event might be impacting a client, especially when it comes to a point at which decisions are made.
"The key point where you are going to want to have those conversations is if you are making a recommendation where they need to do something [or not]," says Willcox.
This means an annual review, for instance, when it is crucial to ensure a client does not make the wrong decision in a state of vulnerability.
Dynamic Planner has devised a vulnerability questionnaire based on the FCA's algorithm used in its Financial Lives survey – albeit Dynamic Planner's tool only collects data on advised clients.
In its first few months of offering the questionnaire, the firm found 10 per cent of clients suffered a moderate or high vulnerability in health events, life events and financial capability. A third of clients displayed vulnerability characteristics in financial resilience.
"The resilience one is the one that's coachable," says Willcox. "That's how you emotionally respond to those shocks, and naturally that is something where an adviser can really help."
To hear about the questions advisers should be asking and what to do when you spot vulnerability in a client, watch the video by clicking on the image above.
