1. Characteristics of vulnerable customers
A vulnerable customer 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. This policy relates to the identification of individuals investing through the Property Crowd website who may be vulnerable and adapting our processes to reduce the likelihood of detriment to them.
Vulnerability is generally associated with the health, life events, resilience and capability of the customer. A non-exhaustive list of vulnerable characteristics is set out below.
- Mental impairment – as well as permanent impairment, this could include temporary impairment due to bereavement or another major life event.
- Physical impairment (e.g. visual or hearing) – this may reduce the ability of the customer to understand the risks and features of their investment.
- Lack of knowledge, experience or understanding – this could include a non-native English speaker or someone suffering from a physical impairment that prevents them from understanding the investment proposition.
- Undue influence – for example the wife of an overbearing gambler or addict.
- Potentially vulnerable – customers who are not currently vulnerable, but are particularly susceptible to a deterioration of their financial, mental or life circumstances, such as an elderly client or a client about to go through expensive divorce proceedings.
- Pressure – clients who either feel a timing or financial pressure to invest without due consideration, such as clients wishing to invest before the end of an investment deadline, or clients who are speculating to pay off debt.
- Lack of financial resources or unpredictable finances – customers with lower financial resources commonly make investment choices that they cannot afford to go wrong.
As the individual investors Property Crowd will accept are restricted to high net worth and sophisticated investors who can demonstrate understanding of the risks and features of any investment they can view, our focus is on identifying potentially vulnerable customers, whose circumstances may change from our initial engagement with them. Whilst it is not the only potentially vulnerable demographic we service, our investor base contains high numbers of investors over the age of 65: this is the age demographic which typically accumulates most wealth and investment experience, but it is also a demographic that subject to potential mental impairment.
2. Identifying vulnerability
Our primary method for identifying vulnerability is through the client on-boarding and investment process. We perform a preliminary assessment of suitability on each potential investor to gain confidence that they understand the key risks and features of investment. This assessment includes specific questions to determine whether the investor has any of the characteristics of vulnerability listed above. Where this assessment indicates that a customer is or may be vulnerable, this is flagged on that client’s file as either “Vulnerable” or “Potentially Vulnerable”. Any investor over the age of 70 will automatically be classified as either “Vulnerable” or “Potentially Vulnerable”.
As discussed above, it is possible that a customer’s profile may change over time and the assessment of suitability is only a point-in-time snapshot of their circumstances. Experience shows that customers value the speed and efficiency of the investment process and, whilst they are prepared to go through a longer KYC process as part of an initial investment, continual information requests on an execution-only platform is off-putting. We must therefore ensure that our customer-facing staff are alert to indicators of vulnerability in ongoing dealings with clients and that relevant data is added to our initial assessment of vulnerability.
Management will consider any complaints data to see if it reveals a lack of customer understanding that may be associated with vulnerability and update our assessment.
3. Consequences of identifying a vulnerable customer
If a client is identified as Vulnerable, an assessment must be made by a Director or other senior manager prior to permitting the customer to engage in new investment activity. If the investment proposition is not compatible with the investor’s characteristics, the investment will not be suitable. Accepting investment from vulnerable investors presents a heightened risk to the firm, as well as to the investor, but equally, denying the investor access to an investment they want and which meets their demands and needs may be unfairly exclusionary.
Where an investor is identified as Potentially Vulnerable, this should not affect their ability to invest, provided the investment appears suitable. Potential Vulnerability is flagged so that the situation can be monitored as part of the ongoing relationship.
4. Staff training
All staff are required to read and acknowledge they understand the firm’s Vulnerability Policy. Their primary obligations are:
- To be able to identify and assess potential vulnerability in clients and potential clients;
- To ensure that client files record and reflect the appropriate assessment;
- To raise any concerns about particular clients or investment activity to the Compliance Function at our regulatory principal prior to processing the investment activity.