By Nick Eatock, CEO of intelliflo
It’s long been clear that even when the crisis stage of the coronavirus pandemic eventually passed, there would be long-lasting consequences.
The most obvious will be on people’s physical health and on those who suffered illness and loss as a result of Covid-19. But the mental, emotional and financial scars will be lasting too, with the pandemic offering yet more evidence of the relationship between our financial wellbeing and our mental health.
The financial implications of the crisis came in the form of redundancies, reduced incomes and the effects of furlough, with cuts to welfare support exacerbating the difficulties faced by many.
The sharpest increases in mental illness during the crisis were experienced by those that experienced sudden and significant drops in household income, according to the National Centre for Social Research. Similarly, the Financial Conduct Authority (FCA) reported that the number of adults with characteristics of vulnerability increased by 3.7 million to 27.7 million between March and October 2020, due to the experience of negative life events such as redundancy and reduced incomes.
Money and mental health
The link between financial problems and poor mental health is well documented and researched. The Money and Mental Health Policy Institute (MMHPI) estimates that almost half of people in problem debt also have a mental health problem. Nearly nine in 10 respondents to its survey of people with experience of mental health difficulties said that their financial situation had made those problems worse. The relationship goes two ways. While those with mental health issues are more likely to experience financial difficulties, it’s also true that financial problems are a common trigger for mental health problems.
Vulnerability to finance-related stress isn’t just about a lack of money, however. One study found that workers with an annual income of more than £90,000 had nearly the same level of financial worries as those earning between £10,000 and 30,000 a year. This underlines an important point about vulnerability that can easily be overlooked: we are all potentially vulnerable.
The FCA has identified four key drivers that can cause temporary or permanent vulnerability: life events, health, capability and resilience. According to the regulator, “a vulnerable customer is someone who, due to their personal circumstances, is especially susceptible to harm – particularly when a firm is not acting with appropriate levels of care”. This is an area of priority for the FCA, which is pushing for improvements in the way firms treat vulnerable customers. It warned in July that while some firms had made “significant progress in how they treat vulnerable customers, including in their response to the pandemic”, it has also seen examples of firms “failing to consider the needs of these customers, leading to harm”.
Starting the conversation
With mental health difficulties so often linked to financial events and problems, it’s clear advisers have a vital role to play in opening up conversations about money and our wider wellbeing. Financial worries can often be a trigger for more personal crises, not only in the form of day-to-day stresses, but also the life events that will often prompt people to seek advice.
After all, events such as divorce, bereavement and even buying a house come with emotional and relationship dimensions as well as financial implications. Advisers are naturally in a good position to get a sense of their clients’ financial wellbeing, particularly if they seek to take a holistic view of their clients’ wider life situation and circumstances. Opening up those conversations to bring the human impact into it can be difficult, however. Simply relying on the adviser-client relationship, reviewing the basic situational details and asking a few questions won’t always be enough.
Fortunately, advisers have a growing range of tools at their disposal that can support those conversations. For example, Intelliflo users now have access to software that helps them to integrate financial vulnerability and mental capacity considerations into their advice. The Comentis ‘Cognitive Assessment Engine’ (CAE) allows firms to create online factfinds around vulnerability and mental capacity, helping them determine the client’s ability to perform certain functions and make decisions. The additional advantage, of course, is that it helps firms demonstrate from a compliance perspective how they have sought to assess vulnerability and account for it in the advice process.
Cashflow modelling tools have a place here too. Like any form of worry, anxieties around financial issues are often centred on the unknowable and uncertain future. Cashflow modelling software can address some of the ‘what if?’ scenarios that fuel financial anxieties, demonstrating the options available in different scenarios and giving clients peace of mind that whatever happens, there will be a way through.
It’s good to talk
Financial problems can be hard to bring out into the open, with feelings of shame and inadequacy a common emotional barrier. The relationships they have built with their clients puts advisers in a strong position to encourage people to talk about their finances. When you combine that with a knowledge of vulnerability and the tools to explore it, there’s no doubt that the advice profession has a powerful role to play in improving the country’s mental and financial wellbeing.