Regulation  

Drawing up a policy for vulnerable clients

  • Describe the importance of having a vulnerability policy
  • Explain what a vulnerability policy is
  • Describe how to keep it foremost in people's minds
CPD
Approx.30min
Drawing up a policy for vulnerable clients

The current coronavirus Covid-19 pandemic and the efforts being taken across the globe to stem its spread could have significant implications for how financial advisers deal with and look after vulnerable and potentially vulnerable clients.

As well as changing the way we work, live and interact, the so-called lockdown measures imposed in the UK could put more clients at risk of becoming vulnerable, whether through isolation, anxiety or some other mental health issue. 

Recent years have seen a growing awareness around consumer vulnerability - and how client interactions with financial advisers could potentially improve their circumstances or, conversely, make them worse.

Pressure is coming from every direction.

The Financial Conduct Authority (FCA) has made it apparent that the fair treatment of vulnerable customers is extremely important to it.

The four key drivers of vulnerability
HealthLife eventsResilienceCapability
Physical disabilityCaring responsibilitiesLow or erratic incomeLow knowledge or confidence in handling financial matters
Severe or long-term illnessBereavementOver indebtednessPoor literacy or numeracy skills
Hearing or visual impairmentsIncome shockLow savingsLow English language skills
Poor mental healthRelationship breakdownLow emotional resiliencePoor or non-existent digital skills
Low mental capacity or cognitive disabilitiesHaving non-standard requirements such as ex-offenders, care leavers, refugeesLack of support structureLearning impairments

Source: FCA

Draft guidance published last year made clear some of the regulator’s expectations. 

In this draft guidance, the FCA said it wants firms to be “more focused on ensuring that the outcomes experienced by vulnerable consumers are at least as good as those of other consumers”.

This is due to be followed up with a second part - including a cost-benefit analysis - this year, although the publication of the update has been delayed by the coronavirus disruption.

Despite this, noises coming from the FCA suggest this regulatory direction of travel is here to stay. 

At the same time, consumer pressure on the subject is heating up.

Consumers no longer always just look at the bottom line when considering their options.

A company's reputation and social credentials increasingly form a part of their decision-making process.

The rise of the internet has meant word travels fast, and firms taking advantage of the vulnerable face potentially fatal consequences to their reputation if they are not careful.

With so much on the line, firms need to make sure they are providing a consistent experience for their clients which is fair and reasonable. 

Ensuring this consistency of service generally requires implementing some sort of company-wide strategy or policy. 

This should include best practice for when working with a vulnerable, or potentially vulnerable client, and empower staff to act or to pass on a client where appropriate.

It could also include practical help for them, such as guidance on referrals, and on data protection. 

Assess what you already do

If you are starting from scratch with a vulnerability policy, a sensible place to start would be to audit your current vulnerability processes, if any exist.

Some firms have piecemeal policies or strategies, or staff may have adopted informal policies by themselves. 

The issue with piecemeal approaches is they may have different objectives, and will inherently result in an inconsistent approach to vulnerability.

They may also have been developed out of a controlled environment, so the quality or appropriateness of these piecemeal policies cannot be guaranteed.

CPD
Approx.30min

Please answer the six multiple choice questions below in order to bank your CPD. Multiple attempts are available until all questions are correctly answered.

  1. The FCA said in draft guidance on vulnerable clinets, that outcomes should be "at least as good" as those for non-vulnerable client, true or false?

  2. What is likely to happen if firms take advantage f vulnerable clients?

  3. How is the FCA defining 'vulnerable'?

  4. Which of the following is NOT an indicator of a mental health condition?

  5. DPR explicitly bans any data sharing with a third party, true or false?

  6. How can a firm keep a regulatory policy foremost in people's minds?

Nearly There…

You have successfully answered all the questions correctly, well done!

You should now know…

  • Describe the importance of having a vulnerability policy
  • Explain what a vulnerability policy is
  • Describe how to keep it foremost in people's minds

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