Keith Richards: Advisers can protect the vulnerable better than regulation

By Keith Richards

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Jun 06, 2019

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.

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.

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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