What does the FCA's work on vulnerability mean for mental health?

The Financial Conduct Authority, quite rightly, has been making this a priority over the past few years, impressing on all firms, whether providers or advisers, the need to address issues of vulnerability and ensure the client always has the best possible outcome to any financial planning recommendation.

While the FCA had to step back from some of its latest work on vulnerability as a result of the Covid-19 crisis, in order to focus its attention on mission critical work relating to tackling the financial issues resulting directly from the pandemic, it is by no means dropping the ball.

In fact, the FCA has made it patently clear that any client could, at this point in time, be considered as potentially vulnerable, as anxiety levels rise thanks to lockdown or the prospect of redundancy or the pressures piling onto self-employed business owners. 

This also makes people more vulnerable to being scammed. We have already seen a rise in fraudulent activity, with Action Fraud reporting in July that £11,316,266 has been lost by 2,866 victims of coronavirus-related scams, with 13,820 reports of coronavirus-related phishing emails.

Moreover, people anxious about their financial future might be more tempted to encash their pensions, for example, or transfer their defined benefit pension into a defined contribution pension even if this is not the best long-term course of action. 

For anybody, Covid-19 has proved difficult, but for clients in mental ill health, the problems of isolation, anxiety, fear and financial worries has exacerbated their vulnerabilities. This is why the FCA has issued guidance for firms relating to Covid-19 and made it clear that clients need an extra bit of hand-holding at this time.

Peter Hamilton, head of retail protection for Zurich, welcomes the FCA's various documentation relating to vulnerability and mental health.

The FCA expects to see people with mental health issues treated fairly and consistently across financial services sectors. -- Andrew Wilkinson

He says: "The FCA’s recent consultation – Guidance for Firms on the Fair Treatment of Vulnerable Customers – is a follow-up to the initial consultation published by the regulator in July 2019.

"The guidance seeks to help firms apply the FCA's long-established Principles for Business to ensure that vulnerable customers are treated fairly and that the outcomes they receive are as good as those for other consumers. The guidance is designed to help firms embed this within their culture, policies and processes.

"Mental health problems or addictions can lead to consumers making harmful financial decisions, being more exposed to scams or more likely to purchase unsuitable products."

But with Covid-19 causing additional problems, advisers should also refer to more updated and specific information.

Jonathan Cavill, senior associate at law firm Pinsent Masons, references the FCA's March Covid-19 guidance for firms, which says firms should be “clear and transparent and provide support as consumers and small businesses face challenges at this time”.

In an update on the law firm's website, Mr Cavill says: "Those challenges will inevitably affect an expanding constituency of vulnerable customers whose needs may become increasingly complex both during the immediate crisis and beyond."

This is not regulatory hyperbole. Work done by the UK's Mental Health Foundation has found half the UK population has experienced some form or mental ill health, with 49 per cent stating they had felt anxious or worried because of the pandemic.

One in 10 respondents to a wide-ranging study by MHF also reported having had suicidal thoughts. This was at the end of June, just as measures to lift the strict lockdown were coming into force. 

And as the UK braces itself for heightened measures to protect against a second wave, these figures might rise. Add to this the general pressures of daily life, as highlighted by recent research among 1,165 UK employees, carried out by trade body Group Risk Development. 

This found the following: 

• Stress and anxiety relating to work (such as pressures of overwork, uncertainty of future) concerned 21% of women vs 18% of men.
• Stress and anxiety relating to finances and debt concerned 18% of women vs 14% of men.

So what does the regulator's focus on vulnerability mean for clients with mental ill health - whether they have a long-term diagnosis of a specific disorder, or they are feeling particularly anxious as a direct result of Covid-19 or the general economic situation as the UK emerges from the pandemic into Brexit?

For Andrew Wilkinson, director of Moneysworth, advisers need to pay close attention to existing guidance from the regulator over vulnerability and avoid simply paying lip-service to it as a form-filling exercise.

He says: "The FCA expects to see people with mental health issues treated fairly and consistently across financial services sectors.

"The FCA has spoken about firms moving away from a tick box compliance approach to, for example 'stepping back to ask what their vulnerable customer’s needs are, and how they are then responding to deliver good outcomes'."

He adds that what this should mean for people with mental health issues is that those advising them are under a duty of care to seek out good outcomes on their behalf.

Ongoing regulation

Questions of vulnerability are, of course, not new and certainly not confined to a post-Covid-19 world.

In the FCA's 2017 survey around vulnerability, the City watchdog found 50 per cent of UK adults display one or more characteristics of potential vulnerability, such as poor health or disability, low financial resilience or capability.

It also cited instances such as divorce or separation, or the death of a loved one, as triggering a short-term period of vulnerability that affects clients emotionally and mentally, as well as financially. 

Mental ill health, therefore, is not something that is always medically quantifiable, presenting with a long-term diagnosis such as schizophrenia or bi-polar disorder; it can be triggered by debt or an accident or the death of a spouse. 

This is why the FCA is at great pains to make sure that all firms realise any client, no matter how long-standing they are, could at any time become vulnerable, and mental ill health is not something that can be ignored as part of a firm's work on assessing vulnerability. 

But the FCA is not just issuing 'guidance' or recommending best practice - it is working to ensure that no client ends up with an adverse financial outcome because their vulnerability was not taken into consideration. 

The FCA's work on the Senior Managers' Certification Regime might also force firms to consider in more granular detail how to incorporate vulnerability into the ongoing advice process.

It would be impossible for the FCA to define everyone who is vulnerable. Kathryn Knowles

Mr Wilkinson certainly believes so: "In the future the FCA’s focus on vulnerable customers will hopefully lead to further improvements in outcomes for people with mental ill health issues.

"This is because senior managers are under an obligation to embed into their firms' cultures the focus on vulnerable customers and their needs."

And in its sector view earlier this year, the FCA particularly mentioned mortgage lending and insurance as areas where there is much improvement needed.

One area where we might see positive changes is in the underwriting of income protection insurance for people with mental ill health issues, which the FCA highlighted in their report earlier this year as an area requiring improvement.

Moreover, the weight of UK law is on the side of people with mental ill health, as they are also already afforded certain rights under the Equality Act 2010, including the right to appeal an underwriting decision. This aspect might not be well-known but it is worth highlighting to clients. 

How to approach vulnerability properly

Kathryn Knowles, co-director of Cura Financial Services, comments: "The FCA defines a vulnerable customer as someone who, due to their personal circumstances, is especially susceptible to detriment, particularly when a firm is not acting with appropriate levels of care."

This means the possibility of a client having a vulnerability is a lot wider than many people may believe. She adds: "It would be impossible for the FCA to define everyone who is vulnerable, especially when many would not diagnose themselves as vulnerable. But it does provide a number of examples, one of which is mental illness."

According to Ms Knowles, it is the advisers' duty to determine vulnerability, and to do so, the regulator, in its practitioner's pack, has referred to such "drills" as Texas, Idea and Carers. The Royal College of Psychiatrists and Money Advice Trust have developed these protocols, which the FCA describes as "practical tools to assist staff in dealing with conversations around vulnerability".

The Texas protocol stands for: 

• Thank them (what they have told you could be useful for everyone involved).
• Explain how their information will be used.
• Get eXplicit consent from the individual for their permission to use their information in this way.
• Ask three key questions: 1. Does your mental health problem make it difficult to repay your debt? If so, how? 2. Does your mental health problem affect your ability to deal or communicate with us? If so, how? 3. Does anyone need to help you manage your finances such as a carer or relative? If so, how?
• Signpost to internal or external help. 

Similarly, IDEA - looking at the impact of an episode of mental ill health on a client, the duration of the problem, the number of episodes experienced by a client and what assistance the customer has been able to get to help them manage their condition, aims to help staff structure and manage more in depth conversations, ask the right questions, and identify relevant information.

CARERS is used to identify pertinent information when handling calls or initial conversations with a carer, checking their authority to act on the customer's behalf, avoiding discussing account details, reassuring carers their concerns can be recorded, explaining that the observations will need to be shared with the customer and recording the carer's observations before summarising.

While these protocols might be helpful for advisers to follow, Ms Knowles says more can be done. She says: "As far as I am aware, there is no requirement for companies to take part in enhanced training when it comes to mental health".

She thinks this would be helpful, explaining that she and Alan Knowles, her husband and co-director, sat Mental Health First Aider training last year with MHFA England.

"This was from our own determination to fully support clients, not a regulatory one. It helped us massively in identifying and assessing vulnerabilities due to mental health."

Zurich's Mr Hamilton also sets out Zurich's approach to helping customers with mental ill health and advocates partnering with specialist third-sector organisations to best help customers. 

Mr Hamilton explains: "Over many years, Zurich has developed our approach to vulnerable customers, which focuses on those who are most in need of protection or support.

"All of our staff undertake training on the topic of vulnerability, and we have an established network of vulnerable customer champions across the business who share best practice and learnings from our interactions with customers.

"We also partner with charities to provide targeted training. For example, this year, many of our front-line staff have received training from the Samaritans which we funded, also enabling us to support their valuable work. The training material provided has now been incorporated into that published annually for front line staff."

When it comes to taking the regulator's line of thinking on vulnerability and mental health seriously, it is worth taking time and the effort to go that extra mile. 

simoney.kyriakou@ft.com