I recently worked with a client named Jayne.
Her husband had passed away, and as in so many marriages, he’d always been the one who looked after their finances. She found herself having to take up the reins. Then a friend recommended an accountant, and she asked them to help.
To cut a long story short, the accountant made quite a mess of things. In the first year working with them Jayne overpaid on tax and didn’t have a clue until she was contacted (how very good of HMRC). She then had to manage the process of seeking a refund.
At this point she realised she needed someone to give her a holistic approach of her finances, and that it wasn’t an accountant she needed, but a financial adviser.
This is where I come onto the scene.
Vulnerability can of course take many forms
Someone who is hard of hearing or sight or is disabled is some way is going to be quite easy to identify as a potentially vulnerable client.
But what about Jayne?
Technically she may be a vulnerable client in any of the categories that the FCA have highlighted as being the key drivers of vulnerability:
Financial capability: how will I assess the potential that she has low knowledge or confidence in managing financial matters, as her husband who normally completed this function has just passed away?
Financial resilience: now that Jayne is living alone, I will need to consider her support structure (or lack of one).
Life events: how has the loss of her husband affected Jayne and how will I assess if this makes her vulnerable?
Health: I don’t even know at this stage if Jayne has any issues in this area that could also mean that she is vulnerable due to a medical condition or her state of health in general.
As we know, the onus is on the adviser to make this assessment.
And you could say it’s common sense - a natural extension of our ability to listen, empathise and find out more about the client. If we detect vulnerability then we can take action to support our client – asking if they’d prefer a relative to accompany them to the meeting for example, or if they’re prefer to meet at their home rather than the office/video.
Jayne may just need a little more time, slowing down the normal advice process into more manageable chunks, or dealing with different needs piecemeal, rather than all at once. She may need more generic support material about how things work in financial services, or even be referred to specialist support such as bereavement counselling.
So far, so good. But the issue is that the FCA wants vulnerable clients to ‘experience outcomes as good as other consumers’. So that means carefully documenting what your prompts and suggestions were, and noting down the client’s reaction to them. Your file needs to show the steps you took, using your vulnerable client policy and if possible, seeking feedback from Jayne as to what worked for her to help her at this difficult time. Any feedback will help shape your vulnerable client policy and its effectiveness.
None of this of course means that you ever need to use the word vulnerable, just treat the client with empathy - no one wants to be labelled and certainly not as ‘vulnerable’.
But of course, you could pull out all the stops regarding vulnerability and after giving excellent investment advice Jayne could still find that her portfolio value could fall – that’s not a good outcome!
The issue of good outcomes
I admit to being somewhat facetious here, but I thought this point still worth exploring, so I asked Paradigm Consultancy’s Graeme Stewart about this one and he said: “As long as the client fully understood the risks involved, the fund chosen was appropriate to the attitude to risk and capacity for loss, the fact that the fund value fell, which was not a good outcome admittedly, doesn’t really matter in terms of the good outcomes that the FCA are specifically speaking about when they talk about a good outcome for a vulnerable client.
Anyone’s portfolio could fall in value, that may be seen by them as a poor outcome, but it’s in an entirely different context to the use of good outcomes in the FCA’s paper. “
Understood, but what if the vulnerable client appeared to fully understand the risks involved?
Graeme says: “If the client didn’t really understand the risks involved but pretended to do so, and the fund chosen was higher risk that the client’s risk profile and perhaps capacity for loss wasn’t explored properly and the dip in value caused a drop in living standards, this is a poor outcome. If the client complained about any of these aspects the Financial Ombudsman Service could well argue that the client didn’t get a good outcome and uphold a complaint.”
It’s a similarly open-ended when we’re asked to write to clients when there’s been a 10% drop in their portfolio. That’s what the rules say. Great. But they don’t say what clients are supposed to do with that information. How are they supposed to deal with that? Telling them their portfolio has fallen could make them vulnerable. They might then panic and make a terrible decision to sell.
You can take a horse to water
The FCA also want us to communicate with vulnerable clients differently we must ‘Make sure all communications and information about products and services are understandable for consumers in their target market and customer base.’
This means segmenting clients in our database, which means identifying them ‘vulnerable’ at least internally. This will need monitoring for when they move out of that state, which is another grey area, when do you do this etc. But let’s say we’ve segmented them in that way and can send them different communications.
What then?
When I wrote to clients recently to explain the reasons behind the current market volatility, it was a few days before my monthly newsletter, which featured a client-facing version of the story about Jayne I mentioned above. I tracked the click-through rates and the case study on Jayne was by far the more popular story!
The FCA also says “Where possible, firms should offer multiple channels so vulnerable consumers have a choice.” They advocate accessible websites, infographics, audio options, large print etc.
Again, it feels to me that this is a natural extension of what we’d all do as part of a high-value, personalised service. If in doubt, we can take a look at their example of poor practice here: “One consumer was unable to read large print and did not know braille. He wanted his bank to communicate by email as he can turn emails into speech, but the bank did not offer this option. The bank continued to send the consumer communications on paper.” If a bank can’t email a client in 2022 …!
Let’s hope this means that the majority of us who are out there providing exceptional service to all clients – and are able to identify and meet the needs of vulnerable clients as we’ve always done – don't have anything to fear from the FCA’s guidance principals.