“Moreover, there is a wider ethical discussion as to the role of product providers, and the relative fairness of expectation that they should adopt the role of ‘parent’.”
DIY dangers
What this case also highlights, says Richards, is one of the “unintended consequences” of pension freedoms; the inevitable spike in DIY consumers expected to access pension pots, and the increased risk of foreseeable financial harm.
“At least the government thought to legislate the need for mandated advice of safeguarded benefits pots over £30,000,” Richards notes.
“And despite the controversy over British Steel and defined benefit transfers more broadly, many thousands of consumers have been protected from making poor life-changing decisions, and the increased freedoms have worked well for some.”
Gething from MorganAsh likewise notes how execution-only has a “far higher” risk of trading with those consumers who are vulnerable, as there is no assessment for vulnerability by an adviser.
“Therefore, there needs to be sufficient processes in place to assess consumer vulnerability, prior to progressing to trade,” he says.
So in addition to health, wealth and life events, Gething, whose MorganAsh Resilience System enables firms to assess consumer vulnerability, says that their system includes a specific attribute of ‘financial capability’ to help understand who is appropriate to trade execution-only, and who should get advice.
“Gambling addiction is an obvious vulnerability for those using execution-only trading platforms,” says Gething.
“The question is, what processes are in place to identify and discourage gambling behaviour, and how effective are they? It is unlikely that a firm’s processes will be 100 per cent effective. But firms must show that they have gone to reasonable lengths to identify such vulnerabilities.”
Maude from TCC Group agrees that without the benefit of financial advice, there is increased potential for harm if vulnerability is missed as a result.
“Sipp operators should have a clearly defined target market. And if the product is not designed for certain groups of vulnerable customers, the firm should put in place processes to help ensure that the product is not distributed to them.
“As circumstances can lead to clients becoming vulnerable after taking out the Sipp, it’s important that there are processes in place to help identify changes; for example, making it clear to the customer that if their circumstances change, they should contact the firm.”
But there is a wider and far-reaching risk in terms of privacy and GDPR, says Maude, citing advised clients as an example. “In what normal circumstances would an adviser ask about potential vulnerability outside of the norm, such as addictions?
“Similarly, are advisers reasonably expected to differentiate between someone who likes to gamble, versus where gambling is classed as an addiction and therefore a vulnerable characteristic?
