Dynamic Planner, the UK’s leading risk based financial planning system, has analysed the data of over 5,000 advised investors assessed for vulnerable characteristics within its psychometric Financial Wellbeing Questionnaire.
Launched in June 2023, the questionnaire is aligned with key questions and the algorithm of the FCA’s Financial Lives Survey (FLS) and was designed by in-house Behavioural Psychology expert Dr Louis Williams.
The analysis found that on the whole advised investors are less vulnerable versus the whole population, with the FCA’s FLS finding that 47% show one or more characteristics of vulnerability compared to Dynamic Planner, which found just 10% of advised investors had a vulnerability characteristic of a moderate to high level. Dynamic Planner’s Financial Wellbeing Questionnaire considers vulnerability on a spectrum and finds significantly less advised clients are highly vulnerable according to their health, life events, resilience and capabilities, although a similar proportion may be affected to some extent.
Within Dynamic Planner’s analysis of data, while 41% of advised investors assessed have a health condition or illness, only 3% have a high level of vulnerability – where they feel their health challenges reduce their ability to carry out day-to-day activities. Almost a third (30%) experienced a challenging life event over the past 12 months, but again it only stops 3% from doing the things they want to (high vulnerability).
Advised investors have strong financial resilience, with six out of ten (61%) saying they feel they can handle whatever financial difficulty comes their way, and a very positive three in four (76%) do not see that keeping up with domestic bills and credit commitments is a burden.
When it comes to emotional resilience and making financial decisions, just 16% feel that uncertainty can be an obstacle, whereas 49% do not let the uncertainty they experience stop them from making financial decisions. Around a quarter (27%) worry about the rise and fall of their investments, but others are either indifferent or are not concerned. This could be explained by the higher level of capabilities that advised clients have in comparison to the wider public. Almost half (49%) feel they are knowledgeable about financial matters, whilst 79% feel confident in their abilities to manage their finances, a reflection of their financial self-efficacy.
Dr Louis Williams, Head of Psychology and Behavioural Insights at Dynamic Planner said: “Since the FCA introduced its ‘Guidance for firms on the fair treatment of vulnerable customers’ in 2021’, the focus on identifying vulnerable clients has been steadily increasing. This momentum continued into the first year of The Consumer Duty and shows no sign of abating with ‘treatment of consumers having characteristics of vulnerability’ identified as a key area for rules which came into force for closed products and services at the end of July.
“While it’s no surprise that advised investors are on the whole less vulnerable than the general population, it is extremely positive that they have strong resilience and financial self-efficacy where a majority of those assessed felt that they could handle many financial decisions. This demonstrates the benefit of having access to professional financial advice and the positive impact on their financial wellbeing. However, research also shows that clients with these characteristics are also more likely to seek financial advice than those with lower confidence in their financial abilities.
“The highest proportion who have a characteristic that may cause them to be vulnerable or become vulnerable in future can be tracked back to health issues, and given the average age of an advised investor is 59*** this is to be expected.
“While FCA Guidance leaves who should be assessed for vulnerabilities to the discretion of the adviser, there are many characteristics that are quite often hidden, so we can really only know the true picture of vulnerabilities if all clients are assessed. Anyone can be vulnerable and clients can become vulnerable at any time.
“While there are many methods used to identify vulnerable characteristics, they can be time consuming or based on intuition which may be wrong. Technology can play a key role in ensuring that all clients are given the same opportunity to uncover anything that could impact their financial future. Advisers could then discuss areas of vulnerability with clients to alleviate issues and ensure the best outcome possible.”
Dynamic Planner’s Financial Wellbeing Questionnaire is intended to be used as part of a broader advice process that has already considered risks, costs and complexity of the financial product being recommended to a client and includes objective measures to understand the client’s current situation, as well as subjective measures that explore how the client feels and their abilities to cope, which are both important for assessing client vulnerabilities.
For more information visit www.dynamicplanner.com.
