Financial Conduct Authority  

Vulnerable clients will not necessarily come into harm, FCA says

Vulnerable clients will not necessarily come into harm, FCA says

Investors with one characteristic that could deem them vulnerable may not necessarily suffer financial harm as a result, research has found.

A characteristic of vulnerability includes health issues, having suffered a recent negative life event such as a bereavement or relationship breakdown, financial resilience difficulties such as low savings or erratic income, or a lack of capability in managing financial matters.

According to a research paper released by the Financial Conduct Authority last week (March 18), if an investor has one of these characteristics, it does not mean by itself that they will have additional or different needs or will experience harm as a result.

Indeed, the paper said a “substantial” number of consumers with characteristics of vulnerability actually display considerable financial sophistication.

“This suggests an approach that tries to identify those specifically with low sophistication might be more valuable than focusing exclusively on other characteristics of vulnerability,” it said.

“This holds true especially for those population subgroups that do have investable assets in the first place.”

The research was undertaken by Melanie Lührmann of Royal Holloway, University of London, Sarah Reiter of the IFO Institute in Munich, Jonathan Shaw, an analyst at the FCA, and Joachim Winter of the University of Munich.

The paper, 'Do consumers understand the risks associated with different ways of saving?', used data from the FCA’s financial lives survey to explore the extent to which consumers understand risks and potential returns associated with different ways of saving.

The data showed that 38 per cent of consumers had a high degree of financial sophistication, 29 per cent showed a moderate level, and 33 per cent had a low degree of financial sophistication.

It emphasised the regulator’s guidance on the fair treatment of vulnerable customers, which says that firms should understand what customers are vulnerable to, and the impact that different circumstances or characteristics can have on them.


The FCA published its long-awaited final guidance on vulnerability last February, and warned that its focus on the way firms treat vulnerable clients will not be a "one-off exercise".

In the paper, the City watchdog warned firms could expect to be asked to demonstrate how their business model, actions and culture ensured the fair treatment of all customers, including those deemed vulnerable, on a regular basis.

The guidance could also be relevant in any enforcement cases against firms under its watch, it warned.

The regulator is asking firms to offer "practical and emotional support" to frontline staff dealing with vulnerable consumers and ensure the fair treatment of this client demographic was "embedded across the workforce".