Investor vulnerability

Investor vulnerability

by Julie Cournoyer, Marketing Advisor

As an advisor, have you encountered a situation where a client was in a vulnerable position? Age, language and cultural barriers, the inability to make independent decisions, mental health problems, and lack of financial literacy are all factors that can cause vulnerability. Clients in such situations may not be able to determine the impact of certain decisions. Given how important your role is, you have a duty to protect your clients’ financial health and assist them in getting the help needed. But do you know how to spot investors in a vulnerable situation?

Where some situations are easy to pick up on, others require greater awareness. While old age is the first factor that comes to mind, younger investors with little financial knowledge are quite possibly just as vulnerable. They could easily be influenced by a third party and make decisions without fully understanding the implications.

And what about the elderly? Detecting cognitive impairment and assessing whether a person is capable of making informed decisions is not always straightforward; incapacity can occur at any age. Aging, loneliness, and social isolation can lead seniors to fall under undue influence or be taken advantage of financially. Many are victims of phishing and fraud. Take the story of Veronika Piela. Tricked by an unknown woman who claimed to be her niece, she found herself declared unfit with a false medical certificate and was placed against her will in a retirement home. Enough to fool even the most seasoned professionals.

A client could also lose their ability to support themselves financially because of language barriers, for example, or because they depend on someone else to care for them. Ultimately, these situations could lead your client to become vulnerable. Is Rodrigo’s brother really translating your explanations word for word? Is Chantale really okay with the transactions her husband wants you to carry out with their money?

Lack of financial knowledge or interest can also amplify client vulnerability; some clients are not able to understand your explanations or investment strategy, or the consequences of their choices. As a result, they end up making decisions that are not always in line with their needs. Perhaps they would have made a different choice if they had the tools to fully understand your explanations…

To protect your clients and limit compliance risks, there are a number of steps you can take. The first time you meet with a client, take the time to assess their financial knowledge. Keep your antennas up for signs of vulnerability. Does your client understand the scope of the discussion? Does one spouse seem to be imposing their decisions on the other? Use clear, simple language and go at your client’s pace for understanding. Refer them to a website or suggest reference documents they can read to improve their financial knowledge.

It is also important to see if your client has considered the risk of no longer being able to manage their finances themselves and to inform them of existing solutions for handling such a situation, such as appointing a trustworthy person. Determine the requirements for communicating with the designated person and make sure you obtain consent before disclosing account information. Afterwards, follow up with your client on a regular basis to ensure that the designation is still valid. If several changes occur over the years, make sure that the designated person is not the mandator to avoid the risk of financial abuse.

Protecting and supporting vulnerable clients is critical. Your relationship with them must be based on trust and respect for their wishes. With a few precautionary measures and by listening to client needs, you can mitigate the risk inherent in vulnerability. In the event of any doubt, even the slightest, don’t look the other way, act. Inform a member of your compliance department or block a transaction long enough for the questionable situation to be looked into. Be the advisor you would like to have on your side.


Experience it yourself, see the difference