Advisers 'underestimate' number of financially vulnerable clients

Financial advisers are largely underestimating the number of clients that could qualify as vulnerable under the Financial Conduct Authority's (FCA) guidelines, recent research from Technical Connection, part of St. James's Place (SJP), has shown.

The survey, conducted by Ad Lucem of 100 financial advisers, found that on average advisers estimate 18% of clients would qualify as vulnerable.

However, research from the FCA showed that the number of UK adults considered to be financially vulnerable is 28 million, a figure that was less than 4 million before the pandemic started, whilst advisers estimated 11.7 million, creating a vulnerability gap.

Financial advisers play an important part in restoring the nation's financial health by supporting those vulnerable clients in the best way possible, the regulator said.

According to Technical Connection, only half of advisers have, in the last six months, formally carried out any work to identify which of their clients may be potentially vulnerable. Furthermore, interpretation of the spectrum of vulnerability remained limited with 60% of advisers recognising only half of vulnerability-related conditions.

The survey showed that half (52%) of advisers from across the profession have formally engaged staff to discuss vulnerability and how to identify, support and provide appropriate solutions.

When it came to ensuring that not just advice requirements were suitable but that the presentation of information and overall approach was tailored to individual circumstances, only a third (32%) of advisers had this integrated into their advice process.

Awareness of the regulatory responsibility on firms to address the issue of financially vulnerable clients was high with 94% of advisers recognising it. However, nearly a quarter (24%) of advisers believed that the requirements are over-burdensome; but in the main 74% of advisers thought the measures were fair.

Despite the apparent distance to go before advisory businesses are fully ready to deal with vulnerability issues, advisers rated themselves on average 7 out of 10 in terms of vulnerability readiness. 42% of advisers rated themselves as 8 or higher out of ten.

To address this situation, the Initiative for Financial Wellbeing (IFW) added a mental health online learning option for members in 2021. They are now able to access an initiative called Compass designed to improve their understanding of mental health issues. The free member benefit gives finance professionals access to online resources about mental health and training on how to better support clients who may show signs of vulnerability.

Edward Grant, director, technical connection at St. James's Place, said: "Client vulnerability is a critical issue that is only going to become more prevalent due to the current cost of living crisis. Our research highlights that many clients with vulnerable circumstances may be slipping through the cracks. Work needs to be done to ensure spotting and supporting clients with vulnerability issues is a natural part of the process."

Carla Brown, managing director at St. James's Place senior partner Practice Oakmere Wealth Management, said: "As a financial planner, I'm convinced that it's essential to have formal processes for dealing with vulnerable clients. Not only is it the right thing to do as a responsible business, but it also makes good commercial sense.

She added that by failing to identify and work with vulnerable clients in the right way, advisers ran a reputational risk.

"However, get it right and it can positively impact your relationship with a client and, in turn, create a strong advocate for your business. When clients find themselves in a vulnerable situation, this is your opportunity to really make that difference and be the safe pair of hands they need."