Vulnerable customer policy must sit at the heart of business culture

We have all seen a lot of material in the press in recent weeks around the new Consumer Duty rules the FCA are keen to get on and implement by the end of April 2023.

As mentioned previously by pretty much all commentators this is not a ‘tinkering around the edges’ piece of work – we can see this by the anticipated cost of implementation at a potential £2.4 billion at the top of the estimate scale with an ongoing £160m per annum.

Interestingly, there was not too much in addition to the current rules on vulnerable customers, but I am sure the FCA would say its current approach is robust enough at present.
Nevertheless, the words ‘vulnerable customer’ were used in the Consumer Duty paper in abundance as the FCA no doubt thinks both identifying and working with vulnerable customers should be at the heart of the culture of any business where money and or assets play a part.

According to the FCA’s own definition: ‘A vulnerable person 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.” It also estimates 50% of customers could be vulnerable at some stage.

We know protecting vulnerable customers remains a key priority for the FCA; it is crucial to acknowledge vulnerability whether actual or potential, can affect anyone at any time and customers can be vulnerable at various stages in life. 

It is also important to say that sometimes this vulnerability can be hidden, even when it is right in front of us. Indeed, customers themselves can be in denial about their vulnerability and/or could find themselves with a complex layering of vulnerabilities. They may also see vulnerability as a weakness and choose not to ‘admit’ to it.

It’s also important to be aware that a customer’s vulnerability could be temporary and therefore it is imperative not to permanently identify them as vulnerable within your advice process.

While the FCA plans to implement its Consumer Duty next year, one of the cross-cutting rules refers to firms needing to ‘avoid foreseeable harm to retail customers’. It could be said that implementation of a full policy for vulnerable customers would be crucial in establishing the culture of a business and go some way at least to helping avoid foreseeable harm.

Previously the FCA has set out four key drivers for vulnerability. These are Health, Financial Resilience, Health Events and Financial Capability of individuals. All are pretty self-explanatory, but we mustn’t forget that when we talk about temporary vulnerability the onset of COVID may have caused or exacerbated some elements which may have manifested themselves in various ways including mental health problems, bereavement, loneliness or financial hardship.

Each adviser reading this article will have known some of their clients for many years and ordinarily would perhaps have been able to spot signs of vulnerability in their own clients over that time. COVID however has impacted all of us and spotting it may not be as easy now and if it is difficult for the adviser themselves to do it think, how difficult it is for staff who may rarely see or speak to the client. 
 

The FCA see it as important to:

1. Understand the needs of vulnerable consumers.
2. Develop skills and capability of staff.
3. Take practical action to work with vulnerable customers.

Interestingly, just in respect of training of staff I recently picked up some information from Aviva who have trained their staff in certain aspects. They have tried to highlight in particular where clients may be:
 

• Making unusual or unexpected decisions – for example wanting to withdraw all of their money or cancel their insurance policy mid-term.
• Stating they had assistance from somebody else in making basic decisions – admitting a family member told them what to do.
• Telling you they are confused or don’t understand – confused about information you have provided them with, or that they don’t understand what will happen with their pension or insurance due to COVID.
• Unable to recall information previously provided – you may have sent the requested information to them recently and they have asked for it again.
• Repeating things – could be in the same e-mail or letter, or could be sending you the same thing over and over again.
• Informing you of stress or worries – may be stressed or worried about current circumstances.
• Telling you they need the money urgently – urgency usually means there is some form of vulnerability, this could be triggered due to COVID.
• Exhibiting a change in writing style or a letter that is disjointed – either within the same letter or writing style has changed compared to letters previously sent by the customer.
• Wanting to put pension, premium payments or direct debits on hold – customer may have been furloughed and are looking to cut back on any out-goings.

These are just a few indicators that could be helpful in pulling together a full vulnerable client policy. We at Paradigm have developed a free ebook for firms wanting to consider this in more detail and can see from downloads that it is a topic advisers want to know more about.

We are also working with firms to help them develop and implement their own policies via our consulting arm. There is little doubt that working with temporarily or fully vulnerable customers is a tricky area but we will all be tasked with making sure we do so in greater ways moving forwards.