The shifting sands of temporary vulnerability among clients can be hard for advisers to deal with.
Clients can be affected by a range of temporary circumstances or one-off events that potentially make them vulnerable in different ways at different times.
Risk factors outlined by the Financial Conduct Authority in relation to vulnerability are a client’s health, life events, capability and resilience. Given that the pandemic ticks all those boxes, it is understandable the FCA’s Financial Lives coronavirus panel survey found 53% of adults displayed a characteristic of vulnerability in October 2020.
Over time the adviser may feel the temporary vulnerability has eased
Clients may not be aware that their circumstances are a source of vulnerability or that support is available. Others may not want to draw attention to their situation, preferring to soldier on.
For advisers, identifying clients who are experiencing temporary vulnerability, knowing how to support them and monitoring their situation all come down to one thing — communication.
Open dialogue
BT’s famous ‘It’s good to talk’ slogan could have been created for advisers’ approach to such clients.
“The first thing we encourage is open and honest conversation so we can assess the level of vulnerability and deal with it appropriately and fairly,” says Yorkshire Financial Planning director Caroline Allen. “As time goes on, less support is likely to be needed. We keep the dialogue open and let the client lead us.”
Talking to a client during a routine meeting can highlight temporary vulnerability that comes out of the blue. Mark Rogers, a wealth planner at Succession Wealth, experienced this recently in a meeting with a high-net-worth client who had received bad news.
We aim to keep the dialogue open and to let the client lead us
“His son had split up with his wife and had to find somewhere else to live. The client said, ‘I’ve got to buy him a house.’”
The client was making a decision based on his emotions, not realising any property he bought for his son at this point would be part of the divorce settlement made to his daughter-in-law.
Rogers asked the client, who was in shock, to think again, and suggested renting a property instead, paying for it in the form of a loan to his son on a monthly basis.
“Vulnerable clients are more likely to make silly mistakes — and stopping clients making silly mistakes is part of our job,” says Rogers.
Brooks MacDonald business development manager David Mulholland believes talking to clients about vulnerability early in the advice process — before it becomes a problem for them — is a sensible approach for advisers.
A client’s attitude to risk may alter. This needs to be considered and portfolios adjusted
“More clients will engage with these discussions and will proactively inform advisers when difficult circumstances arise,” he says.
“The more conversations that take place, the more likely the client is to pick up the phone.”
Mulholland says where this happens it empowers advisers to make suitable recommendations for clients in vulnerable circumstances, and to contact the relevant product providers so everyone involved with the client is aware of the situation.
“Conversations about vulnerability help clients understand how advisers can support them in difficult circumstances, and with the issues they face now and in the future,” says Mulholland.
A trained adviser will pick up the signs of vulnerability through empathetic conversations and listening skills
This support can include signposting to other services that can provide help, and flagging the importance of power of attorney.
However, Mulholland points out advisers may encounter situations where an attorney for a client in vulnerable circumstances experiences temporary vulnerability themselves — perhaps because of looking after elderly parents and being overwhelmed by their responsibilities as an attorney, and possibly as a carer.
“For some attorneys it comes down to a lack of financial capability,” he says. “Conversations need to take place between the generations earlier. There is a lack of prior preparation and often sufficient information is not shared about the responsibilities of an attorney.”
Assessing the impact
Even if the circumstances that give rise to vulnerability are short-lived, the impact on the client may be longer. For example, a one-off life event such as the death of a spouse can have a lasting impact, not just emotionally; it can also affect a client’s capability.
“A surviving spouse who has never dealt with the finances may need longer-term additional support with digital and financial education,” says St James’s Place chartered financial planner and tax specialist Eddie Grant.
The more conversations that take place, the more likely the client is to pick up the phone
In a real-life example, Rogers recalls checking in with the widow of one of his friends every two weeks, with her consent, as she was finding her husband’s death extremely difficult to deal with.
“She also had a friend sitting in meetings with her and after a while you could tell she felt better. But that was just shy of three years later,” he says.
Rogers has also come across clients — particularly the older generation — who insist they are fine when they are clearly not, because they feel ashamed to admit they have a problem.
“Getting them to speak about it is difficult and you really have a problem if they don’t have anyone close to them,” he says. “But if they have a family it’s a good idea if they attend meetings with the client because they can say, ‘It looks like Dad is struggling. Why don’t I take over the finances?’” he says.
Conversations need to take place between the generations earlier
For Grant, identifying the characteristics where clients do not regard themselves as vulnerable is a key consideration.
“The FCA estimated 76% of clients that had vulnerable characteristics did not identify themselves as vulnerable,” he says.
“A trained adviser will pick up the signs of vulnerability through empathetic conversations and listening skills. Enhanced awareness and trained teams make a big, positive difference.”
How to help
Advisers tend to draw on their experience and that of their peers to identify and support clients in vulnerable circumstances.
But advisers are not experts in areas such as mental health, so they may direct clients to third parties, including local authorities and charities.
Stopping clients making silly mistakes is part of our job
In the digital age, apps like Comentis — a ‘cognitive assessment engine’ — could also help advisers bring greater consistency to their vulnerable client processes.
Comentis uses algorithms and asks one set of questions to identify the circumstances around vulnerability and another set of psychometric questions to determine the impact on a client — how equipped they are to deal with a difficult situation and emerge the other side.
“We can then say to the adviser, ‘This is what you need to do to support them,’” says Comentis clinical director Tim Farmer.
“The FCA says over 50% of clients are vulnerable. Speaking to advisers, they say, ‘It’s not 50% of my clients, it’s only 5% of mine, and the adviser over there will have 50% of vulnerable clients.’”
But that may not be the case. Advisers just don’t know what they don’t know.
The first thing we encourage is open and honest conversation
Grant points out during periods of client vulnerability advisers may need to adjust their approach to suit the circumstance — perhaps slowing the advice process where the client is under stress, finding it hard to focus or unable to see the bigger picture.
“It is also likely that a client’s attitude to risk may alter. This needs to be considered and portfolios adjusted,” he says.
Advisers monitor any changes in vulnerability during regular reviews.
“Over time, as part of the review process, the adviser may feel the temporary vulnerability has eased,” says Grant.
“Then they can adopt a more standard approach.”
This article featured in the December edition of MM. To read the full digital magazine click on the image below.
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