#MentalHealthAwarenessWeek: A three-step framework to help financial advisers support their vulnerable customers

by | May 9, 2022

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This article is featured as part of our week-long series looking at awareness and practical advice to support the Mental Health of those working across the financial services sector

By Tim Farmer, Co-founder and Clinical Director at Comentis

It is fair to say that we are witnessing a vulnerability epidemic. With the Financial Conduct Authority (FCA) estimating that one in two adults could now be at risk of financial vulnerability, the chances are that most financial advisers will have already assisted such a client and, if they haven’t, then they will do very soon.

However, let’s be honest here, financial vulnerability can be hard to identify beyond physical health and life-event triggers. And this can put undue pressure on advisers who are simply not trained to identify what are often complex cognitive conditions.

When identifying vulnerability in their clients, advisers will need to consider a series of critical questions. After declaring an individual as vulnerable, what comes next? What is best practice when it comes to supporting these customers? How can financial advisers ensure they comply with regulations while giving their clients access to the best possible products and support?

A simple three-step framework can help to shape the different approaches that advisers should consider when dealing with at-risk customers. Let’s take a look at what this might look like.

Breakout box: By following a three-step framework, financial advisers can successfully identify and support their at-risk clients

1) Identify, link and support

The first stage for an adviser is to identify clients which are financially vulnerable, a task which is easier said than done.
The FCA describes a vulnerable person as somebody who, because of their personal circumstances, is “especially susceptible to harm – particularly when a firm is not acting with appropriate levels of care”.
This covers a wide range of situations and characteristics that financial advisers need to consider.
Here, the FCA outlines four key drivers:
• Health – conditions or illnesses that affect the ability to carry out day to day tasks.
• Life events – major life events such as bereavement, relationship breakdown or redundancy.
• Resilience – low ability to withstand financial or emotional shocks.
• Capability – low knowledge of financial matters or low confidence in managing money.

Many of these tell-tale signs can be difficult to spot, however, especially when the individuals in question may wish to hide their situation or do not believe they are in a financially vulnerable position. Furthermore, what one financial adviser deems vulnerable may not be considered the same by another.

As such, this has traditionally been a process that involves a degree of subjectivity. However, with new tech and the right processes, subjectivity and bias can be totally removed for a truly objective process.

Meanwhile, it is imperative for financial advisers to give equal balance to psychological factors such as those identified under the FCA’s resilience and capability categories. Simply looking at objective facts and obvious factors like major life events and health conditions may not present the full picture needed to base support on.

There are also technologically driven assessment tools that can help to identify financially vulnerable customers. Our platform, for instance, combines clinical expertise from mental health experts and psychologists with hard data to present a fact-based assessment of individuals and their circumstances, removing the subjectivity from the process.

2) Understand the impact of the driver

Once a driver of financial vulnerability has been identified, the second step is to understand the link between that driver and the creation of a vulnerability. The imperative here is to assess the extent to which each driver impacts that person’s circumstances. In other words: which factors are making a tangible difference?

It is only when the impact of the driver (or drivers) is fully understood that appropriate support mechanisms and responses can be adopted.

3) Support

The third stage of the framework must always be focused on support. The rule of three can help advisers better understand the situation of the financially vulnerable customer and identify the optimum response pathway.

First, what is the temporal nature of the situation? A customer may be financially at risk only temporarily – perhaps because they are in between employment or have suffered a breakdown of their relationship. Others may be permanently at risk (for example, a terminal injury or condition), while some could be experiencing fluctuating fortunes dependant on a wide range of circumstances.

Second, where is the vulnerability rooted? Here, the factors could be individual (personal health circumstances), environmental (redundancy), institutional (use of jargon, selective communication channels) or even a mixture of all of these.

Once advisers understand the aetiology, they can begin to identify appropriate responses. For example, if a financial adviser discovers through steps one and two that their customer is hard of hearing, and a company they deal with only communicates with them over the phone, it’s likely that they are dealing with a permanent presentation that stems from an institutional root.

The solution, in this case, would be simple. The financial adviser would set about changing the way the institution (or company) engages with the customer – email or live chat, for instance, would be an easier way for the customer to communicate.

Certainly, financial advisers have a duty of care to their customers to get this right, but with the right technology and frameworks in place identifying vulnerable clients and supporting them with the right solutions needn’t be a burden.

And remember, for advisers, correctly identifying a vulnerable client is not only the morally right thing to do and will lead to that client receiving the support they deserve, but it will also create a stronger client bond long term too.

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