Wealth, just like trust, is often hard earned. The majority of people will spend their lives working, earning, saving and investing so that they can enjoy the rewards in later years.

But, in another parallel with trust, wealth can also be easily lost. Whether through misjudgment or because they have been misled, individuals can sometimes find themselves burdened with unexpected financial problems, which have the potential to cause knock-on effects that are felt at a more personal level.

With this possibility in mind, it is all the more important for decisions about money to be made from a position of knowledge and, therefore, power. As a customer, you should feel that you fully understand the situation in front of you and the implications of any choices you make.

Sound judgements

This objective, while easily described in general terms, does not always translate easily into real world situations, however. Here, there are critical complicating factors involved, predominantly because every customer is very different in terms of their pre-existing knowledge and their cognitive ability to absorb, assimilate and evaluate new information.

As such, some people are more likely to make judgements that would be deemed sound or good, while others might be prone to making poor judgements that are not likely to serve their interests well.

Going further, some individuals might be considered to have characteristics that increase the likelihood of making financial decisions that will put their wealth at risk. In these cases, it is important for financial providers to recognize and make accommodations for such differences – however they might present – in order to prevent avoidable harm being caused.

Broad and complex

Within customer-facing businesses, including financial services organisations, people who might benefit from such additional care are typically referred to as ‘vulnerable’. In its guidance for the sector, industry regulator the Financial Conduct Authority (FCA) clarifies that this label is unlikely to be recognized or welcomed by customers, but that it is widely understood as a short-hand term to describe a broad and complex category.

Indeed, the FCA highlights that vulnerability should be looked on as a spectrum of risk that encapsulates a range of characteristics. These could be present to a greater or lesser extent and could overlap with each other.

Specifically, it points to four key drivers of vulnerability, which are:

Health

This could apply in the case of a person with a physical disability, a chronic or severe illness, or a hearing or visual impairment. It could also apply to those with mental health issues or in cases where cognitive ability is impaired or if an individual is affected by addiction.

Life events

This could apply where people have been affected by changes in their career, such as redundancy or retirement, or in their personal life, such as relationship breakdown, divorce or bereavement. It could also apply to those having to manage additional responsibilities as a carer.

Resilience

This could apply to financial resilience, in terms of erratic income, over-indebtedness or low levels of savings, or emotional resilience, in terms of the ability to deal with setbacks.

Capability

This could apply to anyone with low knowledge or confidence in managing their finances. Individuals might also face barriers to knowledge and understanding based on their skills in literacy, numeracy, language and technology.

Crucially, these should not be seen as categories of vulnerability. Rather, as the FCA underlines, they are the drivers or circumstances that can precipitate a level of vulnerability. And in some cases, the person affected by one of these drivers might not even realise they are affected by them at all.

Research estimates that more than three-quarters (82%) of people who applied for a financial product online are impacted by a condition or experience that makes them more vulnerable to harm. This makes it important for anyone potentially impacted by such factors to be aware of their situation and to ensure they are comfortable that the level of support received is appropriate.

There is also a clear onus on providers. Indeed, the Consumer Duty, introduced by the FCA in July 2023, provides an overarching framework for ensuring that financial service organisations aim to deliver good outcomes for all customers, irrespective of their situation. In March, the regulator said it would be launching a review to assess current understanding and practice in this area.

Putting the term ‘vulnerable’ aside, such initiatives will only help in continuing to build hard-earned trust among customers and helping them to make empowered decisions about their hard-earned wealth.

The information contained within this communication does not constitute financial advice and is provided for general information purposes only. No warranty, whether express or implied is given in relation to such information. Vintage Wealth Management or any of its associated representatives shall not be liable for any technical, editorial, typographical or other errors or omissions within the content of this communication.