Regulation  

Advisers must not approach vulnerability half-heartedly

Jonathan Barrett

Jonathan Barrett

A few weeks ago new guidance was issued by the Financial Conduct Authority alongside an open 'Dear CEO' letter explaining that it will no longer wait for the customer duty to take effect before taking action to improve customer outcomes, specifically with regards to customer vulnerability. 

Certainly, the FCA’s direction of travel on vulnerable customers has been clear for some time, but the pressure caused by current inflation and the so-called cost of living crisis has brought the urgency of implementation into sharp focus due to the FCA's recent communications to lenders. 

The new guidance made clear that identifying and supporting vulnerable customers needs to be as systematic as it is consistent, and it needs to be done quickly, too. That being said, identifying who is at risk in the first place can be difficult for advisers. 

In the first instance, however, a simple three-step framework can help shape the different approaches that advisers should consider. 

1. Identify, link and support

The FCA describes a vulnerable person as somebody whose circumstances make them “especially susceptible to harm – particularly when a firm is not acting with appropriate levels of care”.

It also outlines four key drivers for advisers to consider: health, life events, resilience and capability. 

These signs can be difficult to spot, especially when clients either hide their situation or do not believe they are financially vulnerable. This is particularly true for the more cognitive-based triggers: resilience and capability.

Likewise, what one adviser deems vulnerable might not be considered the same by another. But with the right tech and processes, a truly objective process can be achieved.  

2. Understand the impact of the driver 

Once financial vulnerability has been identified, the second step is to understand the link between the driver and the creation of a vulnerability. What is imperative here is assessing the extent to which each driver impacts that person’s circumstances. In other words: which factors are making a tangible difference?

The impact of the driver (or drivers) needs to be fully understood for the appropriate support to be adopted. What we have seen through the assessments carried out on our platform is that there are often a number of impacts to a single driver. For example, where bereavement is the driver, we are seeing multiple vulnerabilities identified, and these vary from person to person.

What is clear is that one approach to bereavement, for example, is unlikely to offer the right levels of support to another client. It is really important to understand how the circumstance is affecting the individual and then support accordingly.

3. Support 

The third stage is to identify the optimum response pathway. 

First, they should ask: What is the temporal nature of the situation? A customer might only be at risk temporarily – perhaps they are between jobs or have suffered a breakdown of their relationship.

Others might be permanently at risk, for example suffering from a terminal injury or condition, while some could be experiencing fluctuating fortunes dependant on a wide range of circumstances. 

Next, they will need to determine where the vulnerability is rooted. The factors could be individual (personal health circumstances), environmental (redundancy), institutional (use of jargon, selective communication channels) or even a mixture of all of these. Once advisers understand the situation, they can identify appropriate responses.