At 72, Arnold is considering equity release. He recently divorced following a messy separation and speaks English as a second language. On paper, he might be what you consider vulnerable but in real life, he could be the former Republican Governor of California and about to reprise his most famous role. While an extreme example, this clearly highlights why identifying and assisting vulnerable customers is one of the biggest challenges the industry faces.
So let’s start with the basics. What is vulnerability? The Financial Conduct Authority defines a vulnerable customer as ‘someone who, due to their personal circumstances, is especially susceptible to detriment, particularly when a firm is not acting with appropriate levels of care.’ People can be vulnerable due to mental or physical capacity issues, but also because of difficult financial circumstances, life events such as the loss of a partner or poor language skills.
So what about age? While older people are more likely to be vulnerable, simply being older does not necessarily make you vulnerable. This is an important distinction and one that adds to the complexity of the issue with three-quarters (75%) of advisers surveyed by more2life feeling underprepared, saying that more must be done to support customers.
This is why I believe that the equity release industry must step up to this challenge and lead the way. While our customers are not necessarily vulnerable due to their age, it might be argued that as you age, you are more likely to be in a position when the factors that cause vulnerability are present and we need to learn from this to better serve them.
This could be due to a person losing some of their income as a result of the death of a loved one, having a pension shortfall or reaching retirement age with a looming mortgage balance due. In each of these instances equity release could be a viable solution, but the customer’s vulnerability must be rigorously assessed before the product is taken out.
When making an assessment, advisers should delve deeper into a customer’s personal circumstances and ask questions about their reason for taking out an equity release plan. While family are encouraged to be involved in the advice process where appropriate, advisers must also be confident that their clients are able to answer questions without coaching or help from their loved ones.
It’s important, too, that vulnerability is treated as a red flag, not a red line. Vulnerability in itself does not mean a client should not be recommended a financial product and, ironically, by steering away from offering advice to a vulnerable client for fear of falling foul of the regulator, an adviser risks making a client even more vulnerable.
The FCA’s new guidance on vulnerable customers has been a positive step for the industry, with our survey showing that advisers have a greater awareness of these issues. But with 87% of advisers admitting that they still find it difficult to spot such customers in the first place, there is still work to be done and the equity release market is in a position to lead the way.
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