Cascade Commentary

50% of UK consumers (25.6 million people) have been found to currently display one or more characteristics of potential vulnerability in findings from the largest tracking study ever commissioned by the Financial Conduct Authority (FCA). 24% of UK adults stated that they have little or no confidence in managing their money while 45% of all UK adults report low financial knowledge. 

The findings follow on from Occasional Paper No. 8 that was released in 2015 to stimulate debate and interest around the subject of consumer vulnerability to enable firms to better understand the issue and act appropriately. The FCA defines a vulnerable customer as "someone who, due to their personal circumstances, is especially susceptible to detriment, particularly when a firm is not acting with appropriate levels of care." Research indicates that vulnerability can be identified in three forms:

1. Temporary - such as following a divorce, serious illness, bereavement or even substantial windfall as per a lottery win for example;
2. Sporadic - such as mental illness; or
3. Permanent - such as lifelong learning difficulties. 

While permanent areas of vulnerability tend to be considered, temporary events can often be overlooked or underestimated. Evidence gathered, both from dedicated research and from interactions with consumer organisations, reveals that many consumers in vulnerable circumstances are being let down by their financial services providers.

In the report released this week, based on a survey of 12,000 UK adults between January 2017 and April 2017, concerns were raised about the resilience of UK adults with 12.9 million adults reported as being "overdrawn in the last 12 months" and 47% of those who rent indicating that they would "struggle to pay their rent if payments went up by less than £100 per month" - a concern given that inflation peaked at 3.0% in October 2017 with interest rate rises expected in the "coming months". 

Further to this, circa 20% of UK adults aged 18-44 have no cash savings and therefore no buffer to protect against uncertainties compared to only 8% of UK adults aged 55-64. 

Cascade Commentary

Here at Cascade we focus on helping our clients and their advisers to construct diversified cash portfolios aimed at generating enhanced returns under set liquidity and risk parameters. We have found over the last 5 years that our clients tend to be in cash for a multitude of reasons. Some clients hold cash as a buffer to protect against a rainy day, while others have a known temporary cash requirement such as a property purchase or tax bill. 

The Financial Lives research released this week suggests another reason for using cash, namely a provision for allowing clients time to think. We have often seen this be the case for an exit from a business but we suspect that there are many more clients whose advisers should direct them towards the temporary solution of cash while they deal with sudden events such as a bereavement or divorce that may impair their decision-making.

Should you wish to discuss cash options for either yourself or your client, please do let us know on 0191 481 3777. We'll be happy to support for however long is required.