Who are vulnerable customers – how to recognise their needs?


Who are vulnerable customers and how can you learn to recognise their needs?

24,100,000 people. That is no small number, yet in the FCA’s ‘Financial Lives’ 2020 Survey this was the number of UK adults who fall under one of the 4 main drivers that could classify your clients as vulnerable customers.

These 4 categories of vulnerable customers are:

  • Health,
  • Life events (think death, divorce, job loss and relationship breakdown),
  • Resilience – the ability to withstand financial or emotional shock
  • Capability – low knowledge of financial matters or low confidence in managing money

When you read the above 4 headings, the 46% vulnerability figure that the FCA landed on isn’t really all that surprising

But what does that figure mean for you, the Adviser?

What the FCA is really worried about is that when a client, or a potential client falls into the category of ‘Vulnerable’ their decision making is impaired by the simple fact of being, well, vulnerable. (Picture being asked to make huge life choice after the death of a loved one, or a diagnosis of cancer for example).

When you read the above 4 headings, the 46% vulnerability figure that the FCA landed on isn’t really all that surprising

One of the issues around this topic that has come up in in the consultancy paper GC20/03, is that vulnerable customers may be more prone to biases that could have negative effects on their decision making.

This is where you, the adviser comes in. Firstly, trying to establish if you have a vulnerable customer in front of you is the initial step and once this has been established the standard protocols from here are giving your customert extra time at meetings, asking them to bring along a trusted friend to help them through the process and taking extra time to explain the draw backs of the proposed plan of action, all that good stuff.

This last point above leads me onto your customers potential biases, and how they can have a huge effect on their decision making. Where it gets interesting (and a little heavy) is that you, the trusted adviser will also have your own your biases around money, pensions, planning etc that are all running under the surface of every decision that you make, we’re not machines after all.

Okay… so what?

Let’s take a pension transfer. This could also easily be a pension switch, accessing money from a Defined Contribution pot or any other of the many possible combinations that you will see on a day-to-day basis with your clients, but in this instance it’s a transfer.

Your customer has recently been diagnosed with stage 3 cancer, (the outlook is as it is with stage 3 cancer, not the worst but certainly not the best situation to be in) comes to you in a state of high emotion and wants to transfer their DB pension valued at £800,000 so that they can enjoy the money while they can, buy that car, go on that holiday.

This situation (while very specific) is exactly where we can see potential biases at play. The seemingly urgent need to access funds today, may indeed be top of their priorities as all hope for the future is seemingly lost. The FCA’s work on behavioural economics indicates that behavioural problems are particularly acute in financial services due to the complexity of products, trade-offs between present and future interests, and assessing risk and uncertainty, amongst other factors (FCA, 2013 b) (FCA – Occasional Paper -8)

There is, of course a strong chance that your customer survives this ordeal and lives a healthy life thereafter. What if they jeopardise their future retirement plans in that small window of uncertainty?

In this situation, would you be more inclined to advise a transfer? To recommend more cash be drawn down from a pension? That their investments be cashed in?

These are not easy decisions and talking about them out of context is akin to that client with the ‘high attitude to investment risk’ who lost 15 nights of sleep in March and April and had your number on speed dial. Until you are in the situation, you don’t know how you’ll react.

That goes for our customers and ourselves.

The technical aspects involved above aren’t what I am I trying to highlight here. It about how biases, both customers and our own can be swayed by the different life events that are unfolding in both our own and their lives. (Would an adviser in debt be more likely to push through high fee work? – just a thought for you mull over).

We are emotional, feeling beings. Whilst that has many advantages the downside is that when we make life changing decisions based on an emotional event it can have devasting effects to our financial future which in turn will affect our emotional future, and the cycle continues downwards.

All things behavioural finance and the various biases that go with it is something that experts have dedicated their entire lives to (see Dan Ariely et al). The fact that these terms are now coming more and more into the daily lexicon of our profession (and rightly so, in my opinion) shows just how far the industry has come. The breadth and depth of knowledge of not just the technical, but of the inbuilt and ever-changing human biases that the adviser of 2021 and beyond will need to have is staggering.

As the Expert Pensions founder, John Reynolds would say ‘we are in the knowledge business’ and what a business to be in.

Business knowledge is an important strategic asset. It is a culmination of skills, experiences, capabilities and expert insight, which you collectively create and rely on to shape and drive your understanding of what your clients’ needs and requirements are.

There are no hard and fast rules, but once you believe that your client falls into the vulnerable category, from here it’s about having your antennae raised to be alert to any of the biases that may be running under the surface in their head… or yours.


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Shaun Doherty, Financial Planner from Expert Pensions We are a revolution in education. We make the entire process of teaching and learning interesting, memorable and fun (we do try)! •Dedicated Experts with extensive knowledge of the exams we support •Tax, Pensions, Investments and Financial Planning – Experts on hand to answer your queries •Competitive prices and resources that come with the guarantee of years of experience and a history of superior quality •85% of new clients that join our growing network have been recommended. This proves the level of service we provide and sets us apart from the competition •Our reputation is built on exceptional customer service. Come and join us and discover the difference we can make

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