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Advisers warned to watch for vulnerability

Advisers are being warned the number of “vulnerable” clients they encounter is likely to increase, and they need to fully understand their obligation to them.

Wednesday, July 29th 2020, 10:01PM 3 Comments

Training provider Strategi has released a white paper it says is designed to help advice providers identify and cater for such clients.

“The Financial Markets Authority (FMA) released an information sheet in June highlighting its expectations that financial services firms prioritise a review of customer vulnerability practices in light of the Covid-19 crisis,” said executive director David Greenslade.

“The increased financial pressure on individuals created by the pandemic means there are likely to be more clients around exhibiting signs of vulnerability due to income shocks, or health implications.

“Add to this New Zealand’s changing demographics, including its ageing population and growth in minority communities as noted by the FMA in its Strategic Risk Outlook and it appears likely the number of vulnerable clients needing extra assistance and consideration will be on the rise.”

Advisers needed to have adequate policies, processes and practices to meet the needs of those clients as well as their own regulatory requirements, he said.

Strategi said the FMA was using the UK Financial Conduct Authority’s definition of a vulnerable client: “A person, that due to personal circumstances, is especially susceptible to detriment, particularly when the adviser/business is not acting with the appropriate level of care.”

The four drivers of vulnerability were health, life events, resilience and capability.

Health drivers could be things such as poor mental health, disability or illness. Life events could be an income shock or relationship breakdown. Resilience factors might include something such as having a lot of debt or few support structures and capability could reflect a lack of English.

“Covid-19 is likely to result in a greater proportion of the population displaying vulnerable characteristics, both through income shock (eg job losses) and health implications, for example, mental health issues.

“Dealing with vulnerable clients can present a variety of challenges due to the potentially diverse range of needs and the nature of those needs. This is why it is critical to take time to gather the appropriate level of information necessary to evaluate a client appropriately if they do appear to display vulnerable characteristics. It is important to appreciate that if the risk of harm materialises, it has a much greater impact on vulnerable clients.

“There is also the possibility that the client does not consider themselves to be vulnerable. However, they may be willing to accept they are feeling less able to cope due to their current circumstances.”

The paper said staff should be on the lookout for things such as late or missed payments, a lack of response from a client, a client asking the same question repeatedly or changes in withdrawal habits to highlight potential vulnerability. They would need training to ensure they had the skills to have a sensitive conversation with clients.

Every level of a business should understand the role it played in delivering good results to vulnerable clients.

The board would establish the policy and culture, management would embed the process and support staff, product design teams would understand how features of products and services would affect vulnerable clients and front-line staff would identify the vulnerable customers, understand a business's policies, implement them and provide feedback.

“One of the essential features of delivering good outcomes for vulnerable clients is ensuring staff are well trained to identify these clients in the first place. If staff are unable to identify vulnerable clients, then it is unlikely they will be able to meet their needs. They then need to have the skills to deliver good outcomes by modifying the way these clients are dealt with.”

Businesses should recognise, record, respond and report vulnerabilities, the paper said.

Tags: Covid-19 duty of care Mental health Strategi vulnerability

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Comments from our readers

On 30 July 2020 at 3:41 pm Murray Weatherston said:
Policies and Procedures Manual #114 anyone?
On 30 July 2020 at 10:32 pm gavin austin adviser business compliance said:
Very good Murray - I wish I new which act or regulation etc they can regulate that one has to have this PPP ( policies, processes and practices ) (they used to use PPC)- policy, process and controls. Maybe David or someone from FMA can enlighten us all because I don't have the time nor the inclination. What a lot of waffle - a bit like the last sermon from the mount by the FMA CEO on Priorities in response to covid - 19. Like huh "what can they possibly actually do". Just IMHO!!
On 3 August 2020 at 9:14 am JPHale said:
I'm not going to add anything particularly useful.

Vulnerable clients have been around forever, not just with bloody Covid.

As a professional adviser, especially risk, if your needs analysis/fact find is not discovering client vulnerability you're a Fn numpty.

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