Advisers underestimate the number of vulnerable clients
6 Dec, 2024
New research from Schroders shows that 72% of advisers report that fewer than 10% of their clients display a vulnerable characteristic.
Boring Money consumer research suggests that this is significantly understated. The research, conducted in April 2024 with over 1,000 advised clients, showed that 22% of all advised clients report at least on vulnerable characteristic.
The main sources of vulnerability amongst advised clients are:
Financial vulnerability (9%)
Mental health (7%) and then
Emotional vulnerability (6%)
Holly Mackay, CEO of Boring Money, comments, “The FCA’s definition of vulnerable customers is fairly broad. Any assumptions that typically wealthier advised clients do not fall into this camp are to be challenged. Over half of all vulnerable advised clients have investible assets of more than £500,000.”
A better understanding of vulnerability could be an important factor in retention. Vulnerable advised customers are more likely to change advisers. Their reasons for switching are diverse and often relate to dissatisfaction with investment performance, lack of proactive market response from advisers, or not receiving regular financial reviews, unlike the average advised customers who primarily switch due to adviser retirement.
Mackay comments, “This is a tricky issue for the industry to resolve. One the one hand, there’s a commonly held assumption about a vulnerable customer, which can mean people overlook stronger, younger, or more affluent clients who may well be classified as vulnerable because ‘life has taken an unforeseen turn’ at a given moment in time. A better understanding would lead to greater client satisfaction, I’m sure.
“But on the other hand, once you identify a vulnerable customer, the governance ramps up in a way which adds cost and complexity to the provider, and could lead to exclusion for some clients over the mid-term. So there are some uncomfortable questions about to what extent people really want to find this information out. And then what happens as a result of it.”
Gillian Hepburn, Commercial Director, at Benchmark Capital, who oversees partnerships across its 180 financial planning firms, adds;
“The identification and subsequent treatment of vulnerable clients is firmly on the radar for the FCA. Whilst this year the Schroder Adviser survey reports that 72% of advisers class less than 10% of their clients as vulnerable this is an increase from the interim survey in May where this number was only 63%. There are a number of key drivers of vulnerability and in 2022, the FCA identified4 that nearly a third UK adults with more than £50,000 of investible assets had at least one characteristic of vulnerability. Give this statistic, we will continue to track this in the Schroder Adviser surveys and would expect this number to increase.”
