Dan Dobry
Dan Dobry

Vulnerable Customers and Financial Planning

Financial Regulators globally are concerned that consumers in vulnerable circumstances are not receiving competent treatment, from their financial services providers and advisors. We as professionals must adopt a methodology that professionals can follow globally that will give the public the confidence that no one will be taken advantage of. 

The biggest challenge is to define what a vulnerable client is? 

Who are vulnerable clients? 

A vulnerable consumer is someone who, due to their personal circumstances, is especially susceptible to detriment, particularly when a firm is not acting with appropriate levels of care.

Vulnerability can come in various varieties and can be temporary, sporadic, or permanent in nature. Many people in vulnerable situations would not diagnose themselves as ‘vulnerable’. The clear message is that we could all become vulnerable. 

To enable professionals to identify potential vulnerability and prioritize their efforts, one option is to use a fact-finder approach, for example, bereavement, or illness diagnosis which could be considered risk factors, sudden changes in circumstances, could be indicators. 

People who are trying to cope with difficult situations and limited resources could be defined as vulnerable. Stress can affect the state of mind and the ability to manage finances or make decisions effectively. In such conditions, being confronted by a complex issue delivered in complex text or trying to receive service with complex processes and procedures can affect the chances of a family achieving the goals they strive for, and losing control over their assets and their destiny. 

A suitability standard or a fiduciary standard 

As it is virtually impossible to pinpoint a “vulnerable” client the key to working and understanding clients is in the process.

One of the solutions to this problem is not to focus on creating a standard to match suitable solutions to “vulnerable” client’s realities as this is an almost impossible exercise.  Who is vulnerable? What is the suitable process? How do we define a person as being in a vulnerable situation? What is a suitable product? 

The most realistic solution is creating a fiduciary standard where the professional will be required by law to act in the client’s best interest and to implement a methodology of processes and procedures that consider special circumstances and plan accordingly. 

Understanding the proposed process and procedures 

The first and most important exercise in understanding the client’s goals, values, fears, and challenges. 

What are the family’s realities, what stage are they in on their life journey? What are their life goals? What do they want to achieve?  What resources do they have and how can we match these goals to a resource? 

The next stage will be understanding the client’s capacity to lose money: In this exercise, we want to understand what can happen to the family in the scenario of a market downfall?

This process is called a sensitivity study where we can explain to our client what the probability for a market correction could be to his life (not his portfolio) and whether the client has the capacity for being exposed to market risk. 

The next step will be understanding the family’s attitude to exposure to risk: Only after the client understands their family’s need for risk and capacity for taking risk the client can relate to the question on his attitude. 

This is best explained not by defining categories such as risk-averse or aggressive but by understanding probabilities. (For example, you could say: In this diversified asset allocation with non-correlated asset classes the probability of achieving your life goals and the probability of your family losing their money in a crisis are.

In addition to this, it is important on working with the client on all the disciplines of family life:

  1. Understanding and mapping the family financials 
  2. Building asset allocations that map the needs of the family and match their liabilities. 
  3. Sensitivity studies 
  4. Creating passive income as an alternative to working income. 
  5. Tax planning 
  6. Estate Planning. 

Suitability Standard as opposed to a Fiduciary Standard 

Professionals should tailor their advice to individuals and institutional clients. However, they are not governed by the same standards. Most investment advisers work directly for clients and must place clients’ interests ahead of their own, (only the part of the investment advice). however, some professionals are only required to make recommendations that are suitable for clients.

In my opinion, all advisors must be held to a fiduciary standard when delivering financial advice of any kind to families. 

Dan Dobry is the Chairman and Founder of “Global Net International”. Dan is dedicated to finding the most creative and efficient solutions to assist families facing the challenges of a changing market.

About the Author
Dan Dobry was the founder of the Union of Financial Planners in Israel (UFPI), served as the first Chairman and President of UFPI. Dan was the Global Council Representative for Israel for the Global Community (FPSB) from 2012 - 2018 and from January 2019 is a member of the Committee for Standards and Qualifications for the European Union (SQC).
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