Five ways financial advisers can assess mental capacity in vulnerable customers

by | Feb 14, 2022

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

For financial advisers, being able to robustly assess the mental capacity of a client before they engage with them is, of course, absolutely vital. They will need to be able to demonstrate, beyond doubt, that their client has the clarity and capacity to make their own decisions, both in a way that can satisfy the FCA and hold up under clinical scrutiny too. However, the nuanced nature of mental capacity has made this process very difficult for financial advisers. And this has been further exacerbated by the pandemic too, not least given the rising levels of mental health issues we are currently witnessing in the UK. In fact, symptoms of depression, anxiety and other potentially debilitating conditions have almost doubled in the UK during the pandemic.

Over recent years, financial advisers have relied heavily on The Mental Capacity Act 2005 (MCA) which provides a robust structure for assessment but can of course be interpretated and impacted by bias. However, given the increasing mental health crisis that this country now faces, it is becoming more and more vital for advisers to factor in the unique circumstances of each and every client when assessing their mental capacity to ensure any conclusions they make are fair, measurable and consistent. This demonstration of due diligence will be of particular importance if their engagement is challenged in court at a later date.

But how can financial advisers consistently and measurably assess their clients’ mental capacity in a way that protects their rights and preserves their dignity, whilst also ensuring they are giving them the best possible advice. Here are our best practice tips to help financial advisers assess mental capacity in their vulnerable clients:


1) Be mindful of the specific decision in question. The adviser will need to be specific about the decision in question and only that decision. Mental capacity is always item specific, and this is due to something called the threshold of understanding i.e., what does a person need to understand to make that specific decision. The adviser will need to hone down on what the specific decision is and how it specifically relates to their client. It is paramount that the adviser doesn’t make any assumptions here; just because an individual has capacity to make a decision regarding one aspect of their life, does not mean they have the capacity to decide on everything.

2) Gather evidence based on the decision. The adviser will need to gather all the evidence relative to their client’s capacity for that specific decision. They can do so by considering the following four questions; Can they understand? Can they retain? Can they weigh up and apply? And can they communicate? The evidence that the adviser will acquire will vary depending on whether they are working with a client making a ‘Macro’ or ‘Micro’ decision. A Macro decision, for instance, would look at an accumulation of all their actions, behaviours and functions over a period of time, whilst a Micro decision would just focus on that specific point in time. 

3) Identify causative nexus. It is essential for the adviser to do their due diligence to identify the link between any impairment to the functioning of the individual’s mind or brain and their ability to understand, retain, weigh up and communicate. This causative nexus is the link between the person’s inability to make the decision and the mental impairment. If there is no causative nexus, we have to assume the person has capacity.


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