Vulnerable clients should be at “the very top” of wealth managers’ priority lists, according to several senior spokespeople in the industry, despite damning figures from the Financial Conduct Authority (FCA) which show that 49% of portfolio managers and 69% of stockbrokers don’t believe they have a single vulnerable client.
The FCA is undertaking significant amounts of work to protect vulnerable individuals, notably through Consumer Duty regulation, which requires firms to “consider the diverse needs of their customers at every stage of the customer journey and across the product and service lifecycle”.
This regulation builds upon vulnerable customers guidance, first published by the FCA in February 2021. Under the FCA’s definition, a vulnerable client is someone who, “due to their personal circumstances, is especially susceptible to detriment, particularly when a firm is not acting with appropriate levels of care”.
The regulator published a report in February this year on how successfully firms have been implementing Consumer Duty, with Section 3 focusing on vulnerable investors. While it found that some “meaningful changes” have been made, it concluded there were “several areas for improvement”, including companies with gaps in their data and firms asking clients to “repeatedly disclose information about their needs”.
More shockingly, the FCA’s ‘Dear CEO’ letter published in November last year, which called upon firms to reassess the vulnerability status of their investors based on its updated guidance, found that 49% of portfolio managers and 69% of stockbrokers from its wealth data survey did not identify a single vulnerable customer – despite FCA data showing that 50% of people will be classified as vulnerable at some point in their lives.
Elsewhere, a survey of 2,000 end-investors conducted by Research in Finance in June this year found that almost 40% of vulnerable investors are “falling through the cracks”, with 51% of respondents exhibiting vulnerable characteristics, but a separate survey of 210 intermediaries only identifying 14% of their own client banks as vulnerable.
Qualitative feedback from IFAs and intermediaries described the treatment of vulnerable customers as “a minefield” and “a nightmare to navigate”.
The FCA is currently in the process of reviewing companies’ treatment of vulnerable customers, and findings will be published by the end of this year.
When it comes to the high percentage of stockbrokers and portfolio managers not believing they have any vulnerable customers on their books, Dynamic Planner’s Louis Williams says he is “not surprised that such a high proportion make this claim”.
“However, we also need to consider the relationship between financial advice and wealth with vulnerability characteristics,” the head of psychology and behavioural insights says.
“Dynamic Planner research shows that regarding certain areas of vulnerability, such as resilience and capabilities, that a smaller proportion of advised clients are vulnerable compared to customers within the general public.
Read the rest of this article in the July/August issue of Portfolio Adviser magazine
