As the Financial Conduct Authority begins to set clearer and higher standards for business culture and behaviours, advisers are going to need practical and effective steps to deal with vulnerable customers.
My colleague Karl Dines, head of business consultancy at SimplyBiz, and I have previously covered the regulator’s finalised guidance on the fair treatment of vulnerable customers, as well as the new consumer duty where the fair treatment of vulnerable customers is woven throughout the entire document.
Both of these regulatory publications give an insight into the FCA's mindset and its expectations on businesses in regards to vulnerable clients and client outcomes.
What is crystal clear from both of the publications is that these expectations are most definitely not a one-off supervisory exercise.
For anyone not familiar with the FCA finalised guidance, I would encourage you to read this paper and benchmark your systems, controls and processes against the examples of good and poor practice.
The regulator expects businesses to improve the skills and capability of their staff in a way that is proportionate, and gives an example in its finalised guidance in which a smaller business may choose to share existing materials on vulnerabilities with their staff, such as those from professional bodies and trade associations or charity and consumer organisation websites.
The guidance also contains some practical examples for businesses, such as a customer who has a sum of money to invest as a result of a negative life event, which could be a life insurance payout or compensation for a life-changing accident.
It highlights that this client may need more time and help to consider all the information and their options to ensure they reach a conclusion that is best for them in the long term.
Different types of vulnerability
We all know that the fair treatment of vulnerable customers is not a tick-box exercise, and is instead something that businesses must integrate into their systems and business models.
When we look at practical ways in which businesses and advisers can deal with vulnerable customers, I feel a good starting point is understanding the different types of vulnerability.
You may deal with customers who at the outset are in a permanent or temporary state of vulnerability. You may also deal with someone who would not be considered to be in a vulnerable position but changes to their personal circumstances could, in turn, change that status.
Therefore, to understand vulnerability it is important to identify some of its drivers.
While it is very difficult to create an exhaustive list, here are some of the factors that could help you identify potential vulnerability:
- Being in care.
- Poor health.
- Mental health issues.
- Learning difficulties.
- Physical disabilities.
- Being a carer.
- Low literacy.
- Language barriers.
- Low income.
- Living conditions.
- Cultural barriers.
- Poor communication skills.
- Being subject to abuse.
I think it is worth reiterating that displaying a characteristic does not automatically mean an individual is vulnerable.
Once a vulnerable characteristic has been identified and understood, your business may deem that specialist support, which is not within your own capabilities, expertise or resources, is necessary.
At that point, your business can cease to act on behalf of the customer and may wish to refer them on to a suitably qualified and experienced company. A business may take this decision if it believes it cannot act in the client’s best interests.