A recent Chartered Insurance Institute (‘CII’) White Paper has urged firms to have a more robust understanding of vulnerability for their customer base. It should enable them to “develop informed vulnerable customer strategies that will lead to good outcomes for all customers, including those with characteristics of vulnerability.”
Undoubtedly, there remains a very real issue regarding a lack of understanding that firms have around vulnerability identification. In this, his latest article for IFA Magazine, Jonathan Barrett, CEO of Comentis, today assesses why identification is still the weakest link in the vulnerability chain and what advisers need to do to get identification right to start with.
Let’s be frank here. No matter what a firm does around vulnerability – whether they put in place vulnerability training for employees, improve policies or dedicate more procedures to help their vulnerable clients – all of this is arguably worthless without the right identification process in place at the outset.
Vulnerability identification is so much more than just ‘spotting the signs’
Currently we’re witnessing that advisers themselves are being relied upon to spot the signs of vulnerability in their clients. This is wrong for many reasons. The simple truth is that financial advisers are not trained mental health professionals and they never will be. They are experts at what they do of course, but we should never expect them to possess the clinical expertise to recognise the subtle and nuanced signs of vulnerability. After all, vulnerability is far from a fixed boundary that certain groups of people fall into. Rather it’s a delicate threshold that shifts throughout our lives. This means that anyone (no matter what their wealth, age, gender, or status might be right now) can step over that line in an instant. As such, relying on the adviser to spot the signs personally is unquestionably impractical.
In addition to this, firms sometimes believe that clients themselves might share their vulnerabilities. But this is at best wishful thinking, and at worst dangerously naïve. After all, it’s entirely possible that the client themselves might not even be aware they’re at risk from a vulnerability. Just as a financial adviser may lack the clinical expertise to connect a change in social circumstances with financial vulnerability, so too will the average client. We should also consider the possibility that those who are aware that they are vulnerable may not want it to be known. There’s still a very real stigma surrounding the prospect of being vulnerable, and a sense of shame that causes people to shy away from discussing it. This means that relying on clients to be open about a potential vulnerability will never work as a means to identify vulnerability.
Data is the answer
Interestingly, the CII paper documents that 21% of firms still have a ‘data gap’ when it comes to understanding vulnerability and that 26% of firms are merely using data right now as a ‘stop gap’ – rather than it being fit for purpose long term. As the CII paper suggests, there is a significant difference between understanding vulnerable customers and identifying vulnerable customers. But firms really need to understand both. And more than that – if they don’t get identification right, they can’t really begin to understand those vulnerable customers anyway, as the two concepts are intrinsically connected.
The best way to achieve identification is through data. A systematic process for screening all clients, with appropriate accommodations for the needs of those at risk is key. By combining clinical expertise with hard data, through a digital assessment, advisers can remove bias and subjectivity from the process, ensure consistency across their whole client base and be reassured that their systems will adequately meet the scrutiny of regulatory requirements.
Identification is fundamental
Identification is by far the most important part of supporting a vulnerable client – without it the rest of the process is, quite frankly, worthless. I would urge firms to work on getting identification right up-front, by putting tools in place that systematically checks every client for signs they may be at risk.
If advisers can get this bit sorted at the start, the rest will flow from there, plus the investment that’s being put into training and policies will be money well spent long-term.
