Before we recommend any financial product or investment strategy, we must ensure that you can understand the information being provided and make informed decisions with confidence. This is known as assessing your financial capability.
WHAT DOES FINANCIAL CAPABILITY MEAN?
Financial capability is not about how much money you have. It is about your ability to engage with the advice process, understand the risks involved, and manage your finances effectively. Under the FCA’s Consumer Duty, firms must ensure clients receive good outcomes, and assessing capability is a key part of that responsibility.
In this article, we explain how we assess financial capability and how this helps us tailor our advice to your needs.
“Financial capability is the ability to manage money well – both day-to-day and through significant life events” fincap.org.uk.
WHY FINANCIAL CAPABILITY MATTERS
Understanding your financial capability helps us ensure that:
• You fully understand the products being discussed
• You can make informed decisions
• You receive information in a way that is clear and accessible
• Any vulnerabilities are identified and supported
• You are not placed at risk of harm through misunderstanding or complexity
This assessment helps us deliver advice that is not only suitable, but also understandable and manageable for you.
WHAT WE LOOK AT WHEN ASSESSING FINANCIAL CAPABILITY
1. YOUR UNDERSTANDING OF FINANCIAL CONCEPTS
We will explore how familiar you are with topics such as investments, pensions, ISAs, long-term vs short term planning. This will us understand how much explanation and support you may need.
If you are new to investing, we will take extra time to explain concepts such as diversification, volatility and how markets behave over time.
2. YOUR CONFIDENCE IN MAKING FINANCIAL DECISIONS
Some clients feel very comfortable making financial decisions, while others prefer more guidance.
We may ask questions such as:
• How confident do you feel managing your finances?
• Have you made investment decisions before?
• Do you prefer detailed explanations or a simpler overview?
Your confidence level helps us tailor our communication and ensure you feel supported throughout the process.
3. YOUR FINANCIAL RESILIENCE
Financial capability also includes your ability to cope with unexpected events.
We may explore:
• Whether you have an emergency fund
• How stable your income is
• Whether you have dependants
• How you would manage unexpected expenses
This helps us understand whether certain products or strategies are appropriate for your circumstances.
4. IDENTIFYING POTENTIAL VULNERABILITIES
It’s important to remember than vulnerability isn’t always visible, and can affect anyone at any time. Vulnerability can be:
• A health condition – physically, mental or cognitive
• A life event such as bereavement, separating or caring responsibilities
• Struggling to cope with financial or personal shocks
• Low literacy, numeracy or digital confidence
If any of these apply, we will adapt our approach to ensure you receive the right level of support, time and clarity.
5. YOUR ABILITY TO UNDERSTAND AND MANAGE RISK
This is where capability links to, but is distinct from - risk tolerance.
We assess:
• Whether you understand that investments can fall as well as rise
• How you might react to market volatility
• Whether you can manage the emotional and financial impact of short term losses
This helps ensure that any investment strategy is not only suitable, but manageable for you.
HOW WE ADAPT OUR ADVICE BASED ON YOUR CAPABILITY
Once we understand your capability, we can tailor our approach. This may include:
• Providing additional explanations or educational resources
• Breaking information into smaller, clearer steps
• Involving a trusted family member (with your consent)
• Slowing down the advice process to give you more time
• Using visual tools such as cashflow modelling to aid understanding
Our goal is to ensure you feel informed, supported and confident at every stage.
WHAT YOU CAN EXPECT FROM HENSON CRISP
When you work with us, you can expect clear, jargon-free explanations, delivered at a pace that suits you. You’ll receive support tailored to your level of experience and understanding, with a focus not only on your finances, but also on your overall wellbeing. Our advice is always designed to be suitable, easy to understand and aligned with your long-term goals.
Assessing financial capability is not a box ticking exercise. It is an essential part of delivering good outcomes and ensuring you receive advice that is right for you, both now and in the future.
BUILDING CONFIDENCE IN YOUR FINANCIAL FUTURE
Financial capability is about empowerment. By understanding your needs, experience and confidence levels, we can help you make informed decisions and build a financial plan that truly works for you.
