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Clive Waller: FCA vulnerable client focus will only complicate matters

There has been a great deal of regulation on the issue of suitability. Layer upon layer of rules addressing it have increased the cost of running a business and the appalling level of paperwork clients are assaulted with. It couldn’t get any worse, could it? Sadly, it probably will.

Client vulnerability is an area the FCA has been looking at for a number of years, publishing a report in 2016 and now threatening to consult next year. There have been many cases where firms have treated vulnerable people with utter contempt. But my fear is that, once the FCA gets around to doing something, it will involve yet more paper and cost, for little benefit.

The combined impact of increasing longevity, abolition of the compulsory retirement age and pension freedom means people will have more complex financial affairs later in life.

Clive Waller: More regulation is not better in the digital world

As recently as 2000, the majority retired at 60 or 65 on a defined benefit pension or an annuity. Today, few have adequate defined benefits to retire fully at that age and many simply do not wish to.

A 70-year-old running a business may not be vulnerable today but is more at risk of disabling illness than a 50- or 60-year-old. Their financial affairs are likely to be complex. On retirement, drawdown will probably replace the previously common annuity. This has significant consequences for advisers.

The costs of drawdown where the objective is purely provision of income are often too high.

Adviser charges at 100 basis points plus total asset management, and platform charges often exceeding 200bps mean the equity premium is all but consumed, defeating the point of the exercise. So further increasing cost by introducing yet more regulatory process for the identification and management of potentially vulnerable clients could be counterproductive.

Advisers bolster support for vulnerable clients

What is the alternative? There are two strands to my solution.

First, treat the customer fairly. Regardless of vulnerability, a client given appropriate advice by a competent adviser is unlikely to be in a bad place. Most cases of mistreatment involve advice that was clearly inappropriate.

Second, the answers already exist. As the outcome of bad advice to a vulnerable client is likely to end up in litigation, it seems appropriate to look at how lawyers deal with the issue. They resort to law and the Mental Capacity Act 2005. This was written for this very purpose and it is  dangerous and ludicrous to ignore it.

The FCA Financial Lives Survey estimates 50 per cent of consumers are potentially vulnerable. This is the sort of silly number one normally expects from insurers flogging products. It is not helpful.

I will come back to this issue, as it is not going to go away. I do hope some wise heads will attempt to identify the true scale of the problem and see to what extent it is covered by existing regulation, such as TCF. In the meantime, I would suggest all advice firms adopt a written strategy laying out their practice for dealing with vulnerable clients and stick to it – and TCF guidelines – religiously.

Clive Waller is managing director at CWC Research



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There are 4 comments at the moment, we would love to hear your opinion too.

  1. I agree with you (and I think Rory Percival with his position on advisers who issue excessively long Suitability reports does too)
    The Police and Criminal Evidence rules which included the recording of interviews rather than misuse of signed confessions came in to force in 1984 I think it was just as I was undertaking my Duke of Edinburgh’s award with the service element being with our local Police (one of them supervised us for our physical element too if I remember rightly) .
    A written suitability report when dealing with certain vulnerable clients is much like an old style signed confession, not use to any party other than compliance managers as it keeps them in work. The way forward as Lloyds have been doing for sometime and I have been doing for more than a decade is to record all client contacts, both phone and face to face to build evidence of intent and understanding of both parties so that where it is in the clients best interest, intent should be able to overrule full and detailed understanding provided the consumer has a general understanding of who the actions were aimed to benefit.
    Parking and litter enforcement people now have body cams and anyone can pretty much record anything (despite what some people who don’t know claim), provided it is used for personal use and not disseminated, so those advisers who don#t like the idea of being recorded…….. get used to it as you probably are and the first you might know is when a complaint comes in about the fact the suitability report beards NO resemblance to what was said, done, disclosed nor intent of both parties.

  2. Seem to be three main points here;

    1. How do you define vulnerable.

    2. How do you deal with vulnerable customers, given that one size fits all is a no no.

    3. At what point does a customer with dementia for example become vulnerable.

  3. I struggle a little bit – how exactly is vulnerability defined (all customers are vulnerable one way or another – even wealthy footballers…). So it seems to me that this really brings in the risk of retrospective regulation. But if a recommendation is suitable, doesn’t that imply that “vulnerability” (whatever that means) is taken into account?. So how does an extra requirement add more to protection than the cost of implementing?

    • That is pretty much what the FCA’s vulnerability focus has tried to highlight to advisers, i.e. that all of us are vulnerable at different times and in different situations. The irony for me, is that the F-pack haven’t recognized by using a 360 review approach that they actually pick on vulnerable people at certain times too by having their own one side fits all approach to regulation. They need to read their own papers and then swap out consumer for adviser in the original text when thinking of their own approach to regulation of advisers and might then start to realise why some of us say supportive things about them one minute and then either say nothing (which I think is worse) or bite back.

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