“I’m afraid it’s not up to you to decide.”
— Marla Grayson, “I care a lot”, Netflix 2020
Dealing with vulnerable clients
Recently, I had the pleasure of attending Oreana’s awesome annual conference and participating in a session on “Capacity and Consent” delivered by the brilliant Dr Jane Lonie.
Given her focus on mental health and competency, her session was, by turns, both illuminating and terrifying; particularly when she highlighted Lang et al 2017 data showing that rates of undetected dementia exceed 50% in most countries.
The challenge for advisers, already operating in a highly regulated and even more highly scrutinised role, is how to deal with aging clients that are either vulnerable, showing some level of impairment or who you suspect lack capacity.
It’s not a simple question, so let’s explore the issue in a little more detail.
TLDR. Vulnerable clients require a more deliberate, structured approach from advisers, particularly when capacity, comprehension, or external pressures may affect decision-making. You need to identify indicators of vulnerability early, adjust your communication, and ensure informed consent is genuinely obtained. This includes documenting concerns, involving appropriate third parties where necessary, and balancing your duty to act in the client’s best interests with their autonomy. Done properly, this reduces risk for both you and the client while strengthening the integrity of your advice process.
Vulnerability and impairment
There’s a general tendency to think of “vulnerability” in terms of cognitive impairment.
This is understandable given the current focus on consent and capacity but, from our perspective, vulnerability is a broader concern.
Given the need to focus on “client understanding” and the obligation to obtain your client’s “free, prior and informed consent”, there’s little doubt that professional advisers should be conscious of their client’s mental capacity. But, as advice professionals, they should be aware of the need to identify, and appropriately react to, other vulnerabilities including:
- Age,
- Cultural diversity,
- Health,
- Family situation,
- Financial vulnerability
- Domestic arrangements or impaired living situations.
For most advice professionals, the obligation to consider vulnerability in embedded in the FASEA Code of Ethics and reinforced in the law. In fact, the obligation is reflected in your best interests duty, the client priority rules, the need for appropriate advice and prohibitions on unconscionable conduct.
Assessing capacity
“I’m an accountant not a doctor. If the client sounds rational and reasonable that is generally all I am concerned about.”
— Gooley V Gooley [2021] NSWSC 56
Recently, we’ve received a number of queries from advisers, asking how they should appropriately deal with vulnerable clients.
The answer, you might be unsurprised to hear, depends on the specific circumstances.
- Where a client has been diagnosed as being impaired or lacking capacity, you will deal with their Trustee, Guardian or Representative.
- Where your client’s family is concerned that your client lacks capacity, you should deal with your client (and act according to their instructions) until you are provided with Legal Orders appointing a Trustee, Guardian or Representative.
- Where you suspect your client may be impaired, you should refer them to a medical professional to be assessed (or recommend that they are referred to a medical professional for assessment). Alternatively, raise your concerns with their legal representative.
If your client is incapable of providing instructions or making decisions, it may be appropriate for the client’s family, or their legal representative, to apply to the Courts to have someone appointed to “stand in the client’s place” and ensure their best interests are protected. For example, both the Supreme Court of NSW and the NSW Civil and Administrative Tribunal Guardianship Division can appoint a person to be a guardian and/or a financial manager for people with impaired capacity. Theoretically, at least, you could apply to be appointed as your client’s guardian or financial manager but, for a variety of reasons, this should only be contemplated if there are no other options available.
Where the lawyers and psychologists seem to differ on the issue of capacity is that lawyers are instructed to presume that their clients have capacity and agency. We are advised not to make that determination but, where we have concerns, seek an expert medical opinion. This is the most prudent approach, because neither lawyers nor financial planners are medical professionals and, despite their brilliance and ultra-competence, neither is well-positioned or qualified to make such a significant determination.
That said, the law is clear that as a fiduciary (or statutory equivalent) you cannot simply assume competency or blithely ignore reasonably obvious issues. Where, on the basis of your clients conduct or comprehension, you are reasonably concerned about their capacity to comprehend or consent to advice, you have both a moral and a legal duty to ensure your client obtains the help they need.
Even with a presumption of capacity, it is still important to consider your clients right to make their own decisions and the extent to which their health or safety might be compromised by their inability to do so. Please appreciate that your client doesn’t lack capacity or lose their agency simply because they make poor decisions or act contrary to your recommendations and advice.
The Law Society of New South Wales provides some excellent, practical material to assist lawyers dealing with these issues. These documents may similarly assist you.
Read LSNSW guide (mental capacity)
If you’re located outside of NSW, the following resources may help you grapple with these issues:
ACT
ACAT Guardianship and Management of Property Cases
ACT Law Society “Capacity Guidelines and Toolkit”
NT
Office of the Public Guardian “Information for legal professionals”
QLD
Guidelines for assessing decision–making capacity
Queensland Law Society’s “Handbook for Practitioners on Legal Capacity”
Queensland Government’s Capacity Assessment Guidelines 2020
SA
SA Civil and Administrative Tribunal “Guardianship Orders”
SA Law Society’s “Client capacity statement of principles”
TAS
Tasmanian Civil and Administrative Tribunal, Guardianship stream factsheets
VIC
Victorian Civil and Administrative Tribunal, Guardians and Administrators
Law Institute of Victoria “LIV Capacity Guidelines and Toolkit”
WA
State Administrative Tribunal, “Guide for Guardianship and Administration proceedings”
Law Society of Western Australia “When a client’s capacity is in doubt”
Practical Recommendations
“Exercising a choice does not equal competency”
— Dr Jane Lonie
Dealing with vulnerable, impaired or incapable clients requires you to demonstrate respect and sensitivity. Each situation is different and while it’s dangerous to be too prescriptive, there are some general principles that should guide your approach.
We recommend that you:
- Respect your client’s agency
- Always presume your client has the capacity to make their own decisions.
- Remember that capacity is contextual and decision specific
- Be cautious about drawing conclusions about a client’s capacity from limited or single incidents
- Don’t assume your client lacks capacity simply based on their affect or appearance
- Recall that capacity relates to their ability to make decisions – not the appropriateness of the decisions they make
- Balance your concern for their capacity with your obligation to respect their privacy
- Be alert to the nature and quality of their engagement (and the reasonableness of their consent)
- Only seek the appointment or instruction of a substitute decision-making as a last resort.
Although Dr Lonie emphasised that properly assessing capacity requires significant medical expertise (particularly considering the profound legal consequences of that determination) she provided a framework of five lenses that you can apply to test your presumptions. These are
- Understanding – Does your client comprehend the information that you present to them?
- Knowledge/insight – Is your client demonstrating knowledge of, or insight into, their relevant circumstances?
- Believability/Rationality – Are the statements made by your client generally rational and believable?
- Reasoning/Adaptive capacity – Does your client struggle to adapt to, or respond to, changes of facts or topics or struggle to apply information to their circumstances?
- Proactivity – Does your client initiate conversations and voluntarily pose questions to you?
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Frequently asked questions
A vulnerable client is someone whose ability to make informed financial decisions may be affected by factors such as age, cognitive decline, illness, emotional distress, or external pressure from others.
You should look for signs such as confusion, inconsistent instructions, difficulty understanding advice, memory issues, or reliance on others to make decisions on their behalf.
You must ensure the client understands the advice, can provide informed consent, and that your recommendations are in their best interests, while carefully documenting your process.
You should speak with the client privately, clarify their intentions, document your concerns, and consider whether third-party involvement or escalation is appropriate.
Yes. Vulnerability does not automatically remove decision-making authority. You must balance respecting client autonomy with ensuring they fully understand the advice and its consequences.
