Understanding vulnerability

More than half (53%) of consumers in the UK have some characteristic of vulnerability, during their lifetime, which can put them at a financial disadvantage, according to the most recent figures from the Financial Conduct Authority (FCA).¹ Perhaps unsurprisingly, this number increased significantly during the COVID-19 pandemic.

“Although the effects of the coronavirus may be abating, it’s still clear that the issue of vulnerability isn’t going away for many people, and we need to make sure it’s a top priority,” says Edward Grant, Director responsible for vulnerable circumstances at St. James’s Place.

What are vulnerable circumstances?

The FCA outlines four characteristics of vulnerability: 

1.    Poor health

2.    Experiencing a negative life event

3.    Having low financial resilience

4.    Having low capability.

These four categories encompass a wide range of specific issues, and the financial-advice industry is increasingly aware that there are many more problems that can make a person vulnerable than had previously been acknowledged. “A broad range of potential vulnerabilities exist – many of which are not recognised by clients,” says Edward.

Some are more obvious and easier to identify, such as old age, a bereavement or a long-term illness. Others are less so – for instance, mental-health conditions, a relationship breakdown or issues caused by the menopause.

Vulnerabilities can also be divided into permanent ones, such as a physical disability or a life-limiting illness, and those that are – hopefully – temporary, such as a lack of financial resilience or a divorce. 

What’s more, it’s not only ‘negative’ life events that can make a person vulnerable, says Edward. “It’s a common misconception that if a person is wealthy, or has a good pension in place, they cannot be vulnerable. This is a myth that we need to eradicate. Someone who has just won the National Lottery can be every bit as vulnerable as someone on a low income.”

What is financial vulnerability – and why does it matter?

From a financial perspective, vulnerability is potentially a huge disadvantage as it can lead to the individual concerned making poor decisions, often through a lack of mental capacity or being in an emotional condition that doesn’t allow them to think clearly or act with confidence. 

This could mean they miss out on the benefits of financial advice, which can help them to plan adequately for their long-term future, and can also make them more susceptible to fraud and scams.

Financial advisers therefore have an important role to play. They can apply their expertise and knowledge to guide the vulnerable person in the right direction, while also helping to keep them safe from fraudsters.

Many financial advisers are specially trained in dealing with vulnerable clients, and all good ones will be on the lookout for vulnerable characteristics that might have an impact. 

They will also adapt the way they deal with clients according to that person’s specific needs – for example, by ensuring they’re accompanied by someone else at meetings, communicating with them as clearly as possible in the way they prefer, taking additional time to explain complex matters and moving at a pace that suits the client. 

How can you create positive financial wellbeing?

Many people are reluctant to tell their financial adviser that they have a problem that could make them vulnerable – they might not realise the effect it could have on their decision-making or ability to manage their finances, or they may be too ashamed to admit it.

Therefore, it’s always helpful to share personal information with your financial adviser, as the more they know about your circumstances, the better they can support you with the best financial plan for you.

A trained adviser will be able to build a picture of your full range of circumstances and, by taking the emotion out of any situation, offer expert guidance on the right steps to take to meet your goals.

We can also offer help that goes beyond pure financial advice – such as referring you to a specialist to set up a power of attorney, so a trusted person can make financial decisions on your behalf, or helping to find the right long-term care, thanks to our partnership with Care Sourcer. 

Get in touch today to find out how we can help you plan for your future.

Advice relating to a power of attorney necessitates the referral to a service that is separate and distinct from those offered by St. James's Place and is not regulated by the Financial Conduct Authority.

Source:

¹ Financial Lives, Financial Conduct Authority, October 2020 (Based on a survey sample size of 16,190)