In August, the Financial Conduct Authority released its guidance consultation on vulnerable customers along with an updated financial lives survey with a vulnerability lens and 21 in-depth case studies.
As expected, it acknowledges the impact of Covid-19: it has exacerbated vulnerability and prompted different and lasting impact on those who have suffered as a direct or indirect consequence of the pandemic.
The FCA revealed a staggering 23 per cent in the UK have been furloughed or suffered a loss of income.
The prospect that only 50 per cent of people in the UK remain vulnerable, as identified in the 2017 financial lives survey, feels unlikely and advisers need to pay attention to vulnerability people now more than ever.
The guidance consultation – GC20/3 – makes it clear that vulnerable customers remain a priority and focus for the regulator – not only as a standalone objective – and will permeate through all of the regulator’s work as it applies a vulnerability lens to all supervisory and policy work.
GC20/3 elevates the pressure on advisers to start implementing the practical changes required throughout the organisation to evidence vulnerable people experience outcomes that are just as good as other consumers’ outcomes.
Key Points
- The FCA has acknowledged that Covid-19 has exacerbated vulnerability
- Capability to benefit vulnerable clients has been hastened
- Recognising vulnerable clients is a key challenge, with a focus on the skills needed to serve them
The FCA wants to see the issue being taken seriously and companies embedding a vulnerable-centric approach into culture, policies and across the full customer experience.
Senior managers will be asked to demonstrate the actions taken to embed good practice in culture, policies and process.
There will be a heightened intention to intervene where there is actual, or potential, harm to vulnerable customers and in 2023 the FCA will evaluate the actions companies have taken and whether there has been enough improvement.
This year has become a lost year for vulnerable customer regulation, but one where we have all learned a great deal about what it means to be vulnerable and how we can support particular needs.
The pandemic has had an impact on us all, whether through the mental health implications of lockdown, changes to income or illness.
In a business sense, advisers have had to adapt quickly to the changes imposed by working from home.
| The four key drivers of vulnerability | |||
|---|---|---|---|
| Health | Life events | Resilience | Capability |
| Physical disability | Caring responsibilities | Low or erratic income | Low knowledge or confidence in managing financial matters |
| Severe or long-term illness | Bereavement | Over indebtedness | Poor literacy or numeracy skills |
| Hearing or visual impairments | Income shock | Low savings | Low English skills |
| Poor mental health | Relationship breakdown | Low emotional resilience | Poor or non-existent digital skills |
| Low mental capacity or cognitive disabilities | Having non-standard requirements such as ex-offenders, care leavers, refugees | Lack of support structure | Learning impairments |
Source: FCA
That has hastened the implementation of capability that could benefit vulnerable customers (for example, digital authority), which may have taken much longer to happen under ‘normal’ circumstances.
I have witnessed a noticeable upturn in people wanting to have a conversation through lockdown on the practical challenges of helping vulnerable customers. In February this year, we launched the Vulnerability Radar in a joint venture with the Tax-Incentivised Savings Association.
This free tool permits advisers to assess and benchmark their capability around supporting vulnerable customers and, to date, more than 100 companies have signed up across a broad spectrum of the industry.
Results from the tool so far suggest that there is real interest in engaging with the challenge of vulnerability and a thirst for answers.
However, the FCA’s fair treatment of vulnerable customers initiative, unlike more mechanical pieces of regulation, is not a one-and-done activity. It will require change over the medium term to make it a silent part of business as usual, not unlike the regulator’s treating customers fairly initiative.
As with all long journeys, where to start and getting started is often a difficult step – particularly where not all organisations see this as a top priority.
I see two levels of change. First is the culture of the advice company.
Embedding the need for everyone in the organisation to consider how their role and function impacts vulnerable customers and how they logically need to adapt to ensure the appropriate support and considerations are in place.
Changing culture is never easy, but vulnerability requires a rebrand from its external focus on clients. It is people who are vulnerable, and that includes us and our friends, contacts and colleagues in the financial services industry.
While we work in the sector, we are all customers of financial services too. I am also willing to bet that over the past few months, we, or someone we know, have all met the criteria of vulnerability and found interaction with financial services difficult.
We are therefore in a great position to tap into people’s empathy around how we would like financial services to work better, particularly when the need for that extra bit of help and support is in play.
The second level is more practical, driven by people, process and technology.
How do you identify all the changes needed throughout an organisation, especially a large one, and make them happen? That is a complex question for any transformation activity, and one that requires a comprehensive model of the business to ensure nothing gets forgotten.
The regulator acknowledges that lots of good work has been done, but not in all companies, which has led to customer harm. I have previously stated this case but, to date, the good work appears focused on specific use cases, or scenarios.
The FCA wants companies to turn their attention to being robust in response to the broad spectrum of vulnerability they will encounter.
The issue of inconsistency remains. No minimum standard will be prescribed, but the FCA remains concerned that experiences (same situation, different treatment) continue to be mixed, which represents something of a dichotomy.
The industry will need to find a way to collaborate to achieve some basis for consistency.
I personally found the 21 in-depth case studies the FCA has shared to be a useful source. While they cannot possibly cover every eventuality, they do provide the basis to extract principles of behaviour in certain cases that can be extrapolated and applied.
The financial lives survey on vulnerability offers interesting insight. Something that became implicit is how dealing with one vulnerability driver can prompt others, for example, a health-related condition could well cause the customer to be unable to work and impact their financial capacity – 16 per cent of consumers display two of the four drivers.
The case studies that are synopsised in the financial lives survey highlight some of the complexities companies need to manage. Recognising vulnerability is a key challenge, with a focus on the skills and capability of frontline staff. Recognising this shifts the frontline role to requiring a level of emotional intelligence, sympathy and autonomy to act in the customer’s best interest.
Customers are reluctant to share information on vulnerability, anxious about the potential implications, or in the belief that it has no impact correlated to the service.
Undeniably, the industry requires a PR exercise to make people aware there are, or at least should be, only positive consequences to sharing any issues with advisers.
Person-to-person interaction (face-to-face or phone) remains key and preferred, which puts a focus on digital models. As the case studies show, you can have a profound impact on a customer’s experience.
Overall, the paper provides useful direction, but what is clear is that the FCA now expects the industry to act.
The year 2023 may seem a long time away, but work is required now to be ready to satisfy the regulator.
Jonathan Warren is a consultant at Altus
