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Keith Richards: Advisers can protect the vulnerable better than regulation

In 2017 alone, fraudsters stole more than £23m in pension savings. This was, in part, facilitated by the ease of access to capital enabled by pension freedoms. Misled savers were encouraged to make significant drawdowns and unwittingly hand over substantial amounts they may never see again.

It is likely these people were targeted due to their perceived vulnerability. In other words, they were seen as easy targets.

With an ageing population comes an increasing focus on the protection and support for vulnerable people, especially considering the effects of cognitive impairment.

There are currently more than 1.4 million people in the UK aged over 80, with this number only set to increase. While most remain perfectly capable as they advance in years, we are yet to develop effective medical methods to offset the risk of dementia, sufferers of which are projected to reach a million by 2025.

And, of course, vulnerability is not always age-specific; it comes in many forms. Vulnerable people are understood to be those susceptible to making financial decisions they do not fully understand, and which may bear long-term consequences. For advisers, building trust has always been core to strong relationships, but this might also mean clients pay less attention than they should.

The obvious answer is to deal with each client on an individual-needs basis, rather than employ a one-size-fits-all approach, as this will help address certain vulnerabilities that could otherwise be missed.

People are most vulnerable to the likes of fraud, bribery and service providers taking advantage at times of emotional turbulence. Only 20 per cent of people compare prices when looking for a funeral director, compared with 89 per cent who do so when seeking car insurance.

People are also prone to bad decision-making during tough times, such as purchasing high-value items they otherwise would not consider or undertaking risky investments.

Bereavement and divorce are recognised as two key life events where people need to be financially astute, assisted by the mandatory involvement of legal professionals in order to protect everyone involved. But this is not the case with other, equally challenging circumstances, such as long-term illness, struggling with mental health issues or even just being in control of large amounts of cash, as with pension freedoms.

These are all high-risk situations where consumers might not be able to remain level-headed when it comes to making important financial decisions.

GDPR regulations inhibit companies from keeping certain pieces of information considered “sensitive”, meaning advisers are not allowed to document the mental health of a client. But this seems almost contradictory in terms of a general industry trend towards the softer side of compliance, where the advice community is being asked to exhibit how it is managing vulnerability among clients.

Vulnerability is an important issue to address but, by its nature, is very difficult to regulate. The advice profession has a big role to play.

Indeed, by remaining conscious of key moments in life where clients become vulnerable, professional advice has the potential to have a greater beneficial effect than regulation.

Keith Richards is chief executive of the Personal Finance Society



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There are 2 comments at the moment, we would love to hear your opinion too.

  1. Julian Stevens 4th June 2019 at 2:33 pm

    (FS) Regulation, as practised by the FCA and its predecessors, seems to have done a pretty poor job of protecting anyone, vulnerable or otherwise. In fact, it’s done such a poor job that a cross-party committee of MP’s has called for Andrew Bailey to resign. That surely tells us something.

  2. To give regulation and indeed the FCA some empathy, it has for sometime been given too many different areas to oversee and regulate, this scope has been widened once more with the inclusion of prepaid funeral plans….

    It (FCA) has, for a long time failed to be fit for purpose in any area, bringing a broad brush approach to all.

    Vulnerability MUST NOT be the preserve of the old, disability, or those with mental health issues… should be for all, consider any potential or existing client that has less financial understanding or insight than we do …are they not vulnerable ?
    In light of the amount of money being scammed at present, I believe this speaks for itself.
    And yes I agree with Keith this can’t be protected entirely by regulations.

    But then the regulator is not focused ! It is a tortoise on LSD squinting through NHS specs ……slow, hallucinating, and blurred.

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