The approach advisory firms should take to vulnerability in light of Consumer Duty

"Many customers won’t be outwardly showing signs of vulnerability, but this doesn’t mean they are not vulnerable."

At the time of writing, we are less than a week away from the introduction of the new Consumer Duty rules and, what is likely to be, a fundamental shift in the way advisory firms deliver positive outcomes for their clients, and how they evidence this.

For later life advisers – although this is not just the concern of those who deal with older clients – vulnerability is written throughout the Consumer Duty rules like a stick of rock. Or to put it another way, it feels like the flip side to a Consumer Duty ‘coin’, and therefore requires careful consideration.

And there is plenty to consider when it comes to even potential vulnerability with older customers, let alone what you might want to do and how you might want to approach the client journey if you have determined a vulnerability.

At our recent National Later Life Adviser Conference we ran a session entitled, ‘Blind Spots on Consumer Vulnerability’ because there are plenty you might miss or you might not even consider in the first place. As a starting point I would recommend you watch that session because it was able to tease out a number of areas which might otherwise be missed.

However, here are a few thoughts which you might want to consider in light of the new Consumer Duty rules and what the regulator is going to expect of you, particularly in terms of vulnerability.

Firstly, vulnerable customers generally don’t look different to all other customers, and therefore what you may well be looking for is not so much a physical vulnerability – which might appear more obvious – but an individual who is in vulnerable circumstances. And, of course, this is unlikely to be a permanent situation, so you’ll need to assess this with each client interaction.

In other words, many customers won’t be outwardly showing signs of vulnerability, but this doesn’t mean they are not vulnerable. One example of this, and which can be particularly pertinent with older customers, is the influence of family and the complications this can bring, specifically when it comes to later life lending and motivations to take out products.

So, you might have a client who wants to release equity, for what seems like no good reason. They can’t be clear about what they need the money for, and when you delve into their finances, etc, you find they appear to be comfortable with where they are with no great need for a large sum of money.

Delve a little deeper and you might well uncover that pressure is being placed on the client to release money from the home, and indeed you might find family members themselves dealing with vulnerable circumstances. Perhaps a business is failing, perhaps they are struggling with the cost of living, perhaps they can’t pay off credit card bills or other debts, and this is being fed up to the parent/grandparent, who perhaps understandably wants to help.

Who, as the adviser, should you be helping here? Maybe not the client presenting themselves to you but the family member? In a way, their need is greater but what is happening is that the parent is vulnerable because of the family member, and that may well take some unpacking and a clear approach which means you are not willing to go through the advice process with the original client.

This example ties into the approach advisory firms take to vulnerability/potential vulnerability. Some firms might believe that none of the customers they deal with are vulnerable, others might treat all their customers as if they are vulnerable. Let’s be honest here, both of these mindsets are not helpful to either the firm or the customer.

It’s important not to have a bias either way when it comes to vulnerability. Yes, you can look at each client through a vulnerability ‘lens’ but you shouldn’t be assuming the result either way before you do this. As mentioned above, clients may present differently each time you see them, so not only do you need to take each interaction or communication on its individual merits, but you also mustn’t think each one will be the same as the first.

That’s very important in a world in which different challenges or circumstances can present themselves at different times, and especially in a world which is post-Covid and now during a cost of living crisis, or indeed during any personally/financially challenging time. Understanding this is particularly relevant for returning clients.

Two/three/five years ago, the individual might have been in different circumstances with a different level of resilience. Now, that might have shifted – the recent testing times might have made them less able to deal with the situation, whether emotionally or financially. So again, don’t assume that the client returning to you is the same one you saw a few years ago, or even a few months ago.

What is positive for later life advisers is they are likely to have seen and dealt with a lot of clients over the years who present as vulnerable in some way. However, those soft skills may have always been there, but perhaps you didn’t approach the client, the advice, the interaction, etc, in such a formal way. Certainly not as the regulator might now expect you to detail this, to evidence the vulnerability and to outline what you did specifically that was tailored to this client.

Consumer Duty brings this requirement in, and then some. So, make sure you’re comfortable with the system you have, the processes you use, the detail you provide, the communications you offer, the sense-check you accept, and everything else that matters when defining, and dealing, with vulnerability. It is no small task but there is support and resources to help you – not least via Air – and I would certainly recommend you make the most of them.