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CPD: Ethical financial advice for vulnerable clients – part one

Advisers need a strong understanding of the ethical and professional complexities of providing advice to vulnerable clients.

This article, proudly sponsored by GSFM, examines how advisers work with vulnerable clients, particularly those affected by ageing and cognitive decline. It explores the ethical tensions that may arise and the practical application of the Code of Ethics when autonomy, consent and power are challenged.

Vulnerability is a growing issue for Australians, and our demographic trajectory makes an increase in vulnerable clients unavoidable. More clients are living longer and are having to manage retirement savings over multiple decades. At the same time, these same clients need to navigate superannuation, aged care and estate planning decisions, all at a time when their cognitive ability may be changing.

Conditions such as mild cognitive impairment and dementia rarely arrive suddenly. They typically progress unevenly and are often unnoticed at first. This can create time periods where your clients remain legally competent but are increasingly vulnerable to confusion, influence or harm.

As an adviser, you are trusted to recommend strategies, interpret complexity and guide decisions that may affect a client’s security and independence for the rest of their life. Advice that meets legislative requirements may still fail the client if it overlooks their reduced capacity to understand, question or provide informed consent.

To ensure ongoing compliance with the Financial Planners and Advisers Code of Ethics 2019 (Code of Ethics) and its twelve standards (figure one), it is important that advice practices have strategies to define, identify and manage vulnerable clients. This could include guidance on how to identify early warning signs of diminished capacity, how to assess genuine understanding, or how to respond ethically when legal authority (such as the use of EPOAs) and moral concerns diverge.

What is vulnerability?

Defined by the Oxford Dictionary as “the fact of being weak and easily hurt physically or emotionally”, vulnerability is often misunderstood as a static label or a synonym for old age or disablement.  However, in the financial advice context, vulnerability is a dynamic state that can affect any client at any time. You also need to be aware of vulnerability that affects a client’s spouse, a dependent or parent, which in turn may impact the advice you provide.

ASIC views vulnerability through the lens of consumer detriment[1]. While age is a common factor, ASIC emphasises that vulnerability arises when a consumer’s circumstances make them more susceptible to harm or less able to advocate for their own interests. This may include people who have health issues or disabilities, experience language barriers or who are victims of scams.

As the vulnerable clients most likely to be advisory clients are older people, this article focuses primarily on the issues and ethics surrounding age-related vulnerability. However, many of the key points are as relevant for clients with vulnerabilities not related to their age.

Three dimensions of vulnerability

To apply a practical definition in an advice practice, advice practices could categorise vulnerability into three distinct types:

  1. Situational vulnerability, which is often triggered by life events. Bereavement, relationship breakdown or a sudden medical diagnosis can temporarily impair a client’s cognitive load and decision-making ability.
  2. Progressive vulnerability, which involves a gradual decline. This may be a worsening chronic illness or declining cognitive health such as the early stages of dementia. It may require advisers to adapt their communication styles over time.
  3. Structural vulnerability, which refers to a client’s environment, and might include a heavy dependency on family members or carers. While support is positive, it creates a risk of elder abuse or coercive influence, where the client’s own wishes may be overshadowed by others.

Temporary versus permanent diminished capacity

It is also important to distinguish between temporary and permanent diminished capacity. A client grieving the loss of a spouse may experience brain fog that makes complex financial decisions impossible soon after their loss, but they are more likely to regain full capacity in the shorter term. Conversely, permanent conditions often require the formal integration of Enduring Powers of Attorney (EPOA) to ensure the client’s long-term interests are protected.

As advisers know all too well, the Australian financial landscape is complex, particularly when it comes to the later stages of life. The intricacies of superannuation, transition to retirement strategies, estate planning and aged care can be difficult for clients to understand at the best of times. When a client is in a vulnerable state, these complexities are magnified.

One of the difficulties for advisers is the need to navigate a cultural reluctance to discuss decline. Many clients view the loss of financial autonomy as a loss of dignity. This makes your role dual-purpose: you must be both a technical expert and a behavioural specialist, identifying red flags even when the client is hesitant to disclose them.

Alignment of vulnerability with the Code of Ethics

Defining and identifying vulnerability is the bedrock of compliance with the Code of Ethics:

Cognitive decline

The statistics around cognitive decline in Australia are alarming. There were an estimated 433,300 Australians living with dementia in 2025, a figure that’s projected to nearly double to 812,500 by 2054[2]. You are likely to have clients who are either experiencing cognitive decline themselves or are caring for others who suffer from it. If not today, certainly in the near future.

Australia’s ageing profile suggests that cognitive impairment will become a primary driver of capital erosion. The total cost of dementia is expected to soar to over $26 billion by the 2040s, much of which will be borne by individuals through self-funded aged care and medical out-of-pocket expenses[3].

What makes it especially challenging is that cognitive decline rarely presents as a clear dividing line between capacity and incapacity. For many clients, it unfolds gradually and unevenly, creating a prolonged ethical grey zone. It’s a time that’s not simply a health issue, but one that can be a structural risk to wealth management and long-term estate planning. Clients remain legally competent but increasingly vulnerable in their decision-making. It is within this space that financial advisers may face some of their most difficult ethical judgements.

A critical distinction must be drawn between legal capacity and functional decision-making ability. Legal capacity is a binary concept and is typically assessed only when formally challenged. Functional capacity, by contrast, exists on a spectrum and relates to a client’s practical ability to understand information, weigh consequences and make consistent decisions. Advisers are not qualified to diagnose impairment, nor are you expected to make clinical assessments. However, from an ethical perspective, you are obliged to respond to what you observe in the advice relationship with your client.

So, how do you make those judgements? It’s challenging and early warning signs are often subtle. You may notice repeated confusion about previously explained (and understood) concepts, inconsistent or contradictory instructions, or difficulty recalling earlier decisions and their rationale. A client who once confidently engaged with discussions may begin to defer decision making, become anxious when choices are presented or rely heavily on written prompts. In isolation, none of these signs establishes incapacity; collectively they indicate heightened vulnerability and should be a red flag.

Family involvement may resolve issues or can potentially intensify the complexity of the situation. As cognitive decline progresses, adult children or carers may step in. It is important to remain alert to the risk that family pressure can interfere with decision-making. This can occur whether those pressures are well-intentioned or self-serving. The client’s interests must remain central, even when others speak authoritatively on their behalf.

Ethical practice in this grey zone of cognitive impairment may mean you need to slow down the advice process. Strategies could include breaking your advice into smaller steps, revisiting decisions across multiple meetings or narrowing the scope of advice. In some cases, you may have to defer or decline to implement recommendations until you are satisfied your client’s best interests are adequately protected.

Alignment with the Code of Ethics

Working with cognitively impaired clients is challenging but is a time when delivering advice that is compliant with the Code of Ethics becomes increasingly important:

Informed consent

Informed consent is not established by disclosure alone. In the context of vulnerable clients –particularly older clients or those experiencing cognitive change – ethical consent requires you to be satisfied that your client genuinely understands the advice, its implications and its alternatives. A signed authority or SOA acknowledgement may demonstrate procedural compliance, but it does not necessarily confirm informed consent.

Adequate time has been identified as a critical element of informed consent. Vulnerable clients may require longer meetings, multiple discussions or time between meetings to reflect and ask further questions. They may wish to involve other family members. Ethical advice in such circumstances may require you to slow down the advice process.

Allowing the client to have time for reflection can reduce the risk of decisions being made under pressure, whether that pressure comes from family members or market conditions. It is important to be cautious about advice delivered or implemented in a single meeting where vulnerability is present.

Where you are not satisfied that a client understands your advice, proceeding may breach the spirit of the Code of Ethics, even if legal requirements have been met. In these situations, ethical options may include:

Importantly, the ethical response to unclear understanding is not to push through or rely on documentation as protection. In this scenario, to act conservatively will generally be in the client’s best interests.

Alignment with the Code of Ethics

Obtaining informed consent will be more challenging when your client has identified vulnerabilities. The following standards in the Code of Ethics must be considered with respect to vulnerabilities and informed consent. 

Family, Powers of Attorney and Conflicted Loyalties

As your clients age, it is natural for their adult children to take a more active role in their parents’ financial affairs. In most cases, this involvement is well-intentioned support, and the children (or other relatives) act with their parents’ best interests at heart. In some cases however, intent may be less positive and there may be a point where support shifts into control.

‘Inheritance impatience’ has been widely documented. This term is described as ‘the phenomenon where heirs become cognitively or emotionally entitled to a family member’s wealth before their passing’[4].  This often leads the impatient family member to pressure ageing parents into financial decisions that benefit the beneficiaries rather than your clients. This is increasingly a driver of elder financial abuse in Australia and often manifests through the misuse of legal instruments to accelerate the transfer of wealth. Elder abuse will be discussed in more detail in part two of this article.

Advisers need to be alert to adult children viewing their parents’ superannuation, home or other assets as rightfully their own. This mindset can lead to E/POAs making decisions that preserve the capital for the beneficiaries rather than funding the high-quality care their parents (or other relatives) require.

For the adviser, the big challenge lies in honouring the legal authority of an E/POA while maintaining their client’s best interests.

To protect the client, yourself and your practice, it is important to document everything. If a family member attempts to override a client’s known wishes, you should refer to the Statement of Advice created when the client had full capacity. While a legal document grants a family member the right to sign papers, it does not grant them the right to erode the client’s autonomy for their own future gain.

Case studies

The following case studies are loosely based on those published by ASIC and AFCA. They have been amended to better fit the subject matter of this article; names of people and places have been changed.

Case study one: Cognitive decline

Alexander is a senior financial planner with ACME Advice. His client, Dorothy, is 78, and has been widowed for several years. Dorothy has been Alexander’s client for 15 years, has a $1.2 million portfolio and has historically been sharp, conservative and very organised.

During an annual review in early 2024, Alexander noticed subtle shifts in Dorothy’s behaviour. She repeated the same question regarding her franking credits several times and seemed uncharacteristically overwhelmed by a simple rebalancing proposal. Her son Marcus began attending meetings, frequently finishing her sentences and trying to speed up the process. Alarmingly, he started to push for a large one-off withdrawal from Dorothy’s portfolio to fund his own business venture, claiming it was “what Mum wants, I’ll get it eventually.”

Alexander recognised that Dorothy was displaying signs of potential cognitive decline and Marcus was showing classic inheritance impatience.

Alexander realised that proceeding with business as usual would potentially be an ethical breach as Dorothy seemed inclined to agree to the withdrawal, despite it not being in her best interests. As such, he implemented the following adjustments to his process:

  1. Alexander insisted on a brief, private session with Dorothy before Marcus joined the meeting. This allowed him to gauge her uncoerced intent and assess her capacity without influence from her son.
  2. He simplified the discussion, using visual aids and plain English summaries to ensure Dorothy could grasp the longer-term implications of the proposed withdrawal.
  3. Rather than seeking a signature on the day, Alexander implemented a mandatory 48-hour cooling-off period. He encouraged Dorothy to sleep on the decision and documented her rationale in her own words.

Alexander recognised that his primary duty was to protect Dorothy’s interests, even if it meant frustrating Marcus, a potential future client. He analysed Marcus’s requested withdrawal and determined that while Dorothy wanted to help Marcus, the capital depletion would risk her ability to fund a Refundable Accommodation Deposit should she need high-level residential care in the future. Alexander advised against the full amount, prioritising Dorothy’s longevity risk over Marcus’s liquidity needs.

Alexander also documented the high risk of undue influence. He made file notes to record specific instances where Dorothy’s verbal instructions contradicted her historical financial values, creating a paper trail to protect her from financial exploitation in the future.

Ultimately, Dorothy agreed to a smaller withdrawal to support her son. Alexander’s proactive stance prevented a significant erosion of Dorothy’s capital, and she remained in a secure financial position. At the same time, ACME Advice avoided the significant compliance risk of facilitating a transaction under duress.

Alexander’s actions saw him comply with his ethical obligations. Importantly, he upheld the following standards.

Case study two: Misuse of EPOA

Adviser Bruce is the principal of a mid-tier advice firm, ACME Investments.  His client Michael, aged 82, lives with advanced Alzheimer’s disease. His son Patrick holds an EPOA.

In March 2025, Michael’s cognitive health declined to the point where he was no longer capable of making financial decisions. His son, Patrick, activated his Enduring Power of Attorney (EPOA). Bruce, who had managed Michael’s substantial portfolio for a decade, saw an opportunity to meet the firm’s internal capital targets.

Bruce proposed a strategic shift to Patrick. His recommendation was to liquidate $1.2 million (50 percent) of Michael’s blue-chip shares to invest in a private, unlisted property development fund being promoted by ACME Investments’ licensee. To secure Patrick’s cooperation, Bruce offered a referral fee – a hidden 2% ($24,000) kickback, to be paid to Patrick personally under the guise of an administrative consultant fee.

The ethical and legal ramifications for Bruce documented by the regulator are severe:

Bruce failed to act as a fiduciary and potentially breached the following standards:

Protecting vulnerable clients is not just a regulatory expectation, it is central to maintaining trust in financial advice as a profession. The surge in cognitive decline and other vulnerabilities across Australia – particularly among ageing clients – represents a shift in the financial services landscape.

The differing paths taken by case study advisers Alexander and Bruce underscore how profoundly the role of the financial adviser has evolved. Advisers now play an essential role to preserve their clients’ wealth and dignity, particularly where family dynamics and inheritance expectations threaten to overwhelm objective judgement. In such circumstances, ethical financial advice can be the difference between protection and unintended harm.

Part two of this article, to be published March 2026, will explore elder financial abuse and provide a practical framework for assessing client vulnerabilities within an advice practice.

 

Take the FAAA accredited quiz to earn 0.5 CPD hour:

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The following CPD quiz is accredited by the FAAA at 0.5 hour.

Legislated CPD Area: Professionalism & Ethics (0.5 hrs)

ASIC Knowledge Requirements: Ethics (0.5 hrs)

 

 

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Notes:
[1] ASIC’s expectations for protecting vulnerable customers, November 2020
[2] https://www.dementia.org.au/about-dementia/dementia-facts-and-figures
[3] National Centre for Social and Economic Modelling (NATSEM), Economic cost of dementia in Australia 2016-2056, February 2017
[4]  National Elder Abuse Prevalence Study, Australian Institute of Family Studies, December 2021

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