Millions of people in the UK struggle with complex financial language, leaving them at risk of costly mistakes and financial harm — especially vulnerable customers. In this article for IFA Magazine, Fraser Stewart, Lyfeguard, reminds us why IFAs are in a prime position to bridge this gap, empowering clients through plain-language explanations, tailored support, and proactive advocacy.
It’s a worrying statistic: 12% of British adults have lost money due to misunderstanding complex financial language. This is hardly surprising given the state of financial education in the UK. Our school curriculum prioritises concepts like the Pythagorean Theorem over essential life skills like managing money. While geometry has its place, understanding financial fundamentals like mortgages, compound interest, and credit card APRs is crucial for navigating everyday life and avoiding potentially devastating financial pitfalls.
This lack of financial education becomes a major problem when young adults enter the workforce. Suddenly, they’re bombarded with decisions about pensions, credit cards, and loans, often with little to no guidance. Take pensions for example; understanding the tax benefits and the long-term impact of compound interest makes it clear why contributing as much as possible is a smart choice, even if it means a slightly smaller paycheck now. However, without this knowledge, it’s easy to see pension contributions as simply reducing a current paycheck for a distant future that seems irrelevant. This can have significant consequences for their retirement years.
Similarly, navigating the world of credit cards can be a minefield. Young adults are bombarded with different options – rewards cards, balance transfer cards, low-interest cards – each with its own set of terms, conditions, and jargon. Understanding the differences between purchase rates, representative APRs, credit limits, and annual fees is essential to avoid costly mistakes. Reward cards might seem attractive upfront, but high APRs can quickly lead to a mountain of debt if not managed carefully.
The result is a perfect storm: a lack of foundational knowledge compounded by the financial industry’s reliance on complex jargon. Our cultural reluctance to discuss money openly exacerbates this further, preventing young people from seeking help and advice. Individuals become vulnerable to poor financial decisions with potentially long-lasting consequences.
Vulnerable Customers & Financial Jargon
The impact of financial jargon is not felt equally across society. Vulnerable customers are particularly susceptible to harm. The Financial Conduct Authority (FCA) identifies a vulnerable customer as someone who, due to their personal circumstances, is especially susceptible to harm, particularly when a firm is not acting with appropriate levels of care.
This vulnerability can stem from a variety of factors. Poor health, including chronic illnesses, disabilities, or cognitive decline, can make it difficult to understand complex financial information. Significant life events like bereavement, job loss, or divorce can create emotional distress and financial instability, making individuals more vulnerable to exploitation.
Furthermore, individuals with literacy or numeracy difficulties may struggle to understand financial documents and make informed choices. Communication barriers, such as language differences, hearing impairments, or learning disabilities, can hinder effective communication with financial providers. Existing financial hardship, including debt, low income, or unemployment, can increase vulnerability to high-cost credit and predatory lending practices. And mental health issues like anxiety, depression, or dementia can impair judgment and decision-making abilities.
For these individuals, encountering complex financial jargon can be incredibly daunting and lead to serious consequences. This highlights the need for financial institutions to prioritise clear communication and avoid potentially exploitative practices.
How IFAs Can Help Vulnerable Customers
Independent Financial Advisers (IFAs) play a crucial role in bridging the gap between complex financial products and vulnerable customers. First, they can explain complex financial concepts in plain English, avoiding jargon and technical terms. For example, instead of simply presenting a client with a complex pension plan, an IFA can explain the distinct types of pensions available, the benefits and drawbacks of each, and how they relate to the client’s individual circumstances.
This commitment to clear communication extends to breaking down information into manageable chunks, using visual aids when appropriate, and consistently checking for understanding, particularly when collaborating with clients who have low literacy or numeracy skills. In these cases, IFAs might use simplified documents, alternative communication methods, and offer repeated explanations and opportunities for clarification.
IFAs can also take the time to understand the individual needs and circumstances of vulnerable customers. By building a relationship based on trust and empathy, they can help alleviate anxiety and empower customers to take control of their finances. This is especially important for individuals who may have had negative experiences with financial institutions in the past or who are facing mental health challenges. For these clients, IFAs can offer sensitive and understanding support, encouragement, and even help them develop coping strategies for financial anxiety or stress.
Another vital role of IFAs is to assess the financial situation of each customer and recommend suitable products and strategies that align with their goals and risk tolerance. They can help vulnerable customers navigate complex decisions like choosing a pension scheme, managing debt, or planning for long-term care. For a customer struggling with debt, an IFA can help them create a realistic budget, explore debt consolidation options, and negotiate with creditors. If a client is experiencing financial hardship, the IFA can assist them in accessing benefits or grants and provide emotional support and guidance during these challenging times.
IFAs can also act as advocates for vulnerable customers, helping them to understand their rights and access available support. They can intervene on their behalf with financial institutions or government agencies, ensuring their needs are met. If a customer is facing difficulty claiming benefits, an IFA can assist them with the application process and advocate on their behalf. This is particularly important for those with communication difficulties, where the IFA can be patient and adaptable, using clear and concise language and working with caregivers or support workers to ensure effective communication.
Finally, IFAs can play an initiative-taking role in promoting financial literacy within their communities. They can offer workshops, seminars, or one-on-one sessions to educate vulnerable customers about essential financial concepts and empower them to make informed decisions. This could include workshops on topics like budgeting, saving, investing, and avoiding scams.
Final Thought
The role of IFAs is becoming increasingly important in an increasingly complex financial world. As technology advances and new financial products emerge, vulnerable customers need more support than ever to navigate the challenges and make informed decisions. IFAs are uniquely positioned to provide this support, acting as trusted advisers and advocates for those who need it most.
