As part of its review, the Financial Conduct Authority could find vulnerabilities remain “an afterthought” in some firms rather than being “front and centre of their process design”.
Last week (March 15), the regulator announced it would review firms' vulnerability processes.
It said it would look into whether firms understand consumer needs and whether their staff have the necessary skills as well as product and service design, communications and customer service, and whether these support the fair treatment of vulnerable customers.
Alexandra Roberts, head of regulatory policy and compliance at Pimfa said the announcement of the review was “not unexpected” and said this was the start of what she expected to be a “relatively long process” to ensure vulnerable clients are being correctly identified.
Levels of inconsistency
According to some in the industry, following its review the FCA may find inconsistent levels of understanding among firms when it comes to client vulnerability.
Anthony Scammell, adviser and client services director at Quilter, said: “While the industry has come on leaps and bounds, when conducting its review, the FCA may find areas where firms lack understanding of their consumers' needs or where they need to improve skills, products, and service designs to support vulnerable clients effectively.
“The review could reveal shortcomings in how firms identify and assess vulnerability and whether they have adequate measures in place to prevent foreseeable harm to these customers.”
Stuart Ritchie, managing partner at GSB Capital said the FCA may find some firms can demonstrate a “strong grasp” of consumer needs and have introduced support for vulnerable clients effectively.
While also highlighting “deficiencies in staff skills, product offerings and service designs that hinder their ability to assist vulnerable clients adequately.”
Morven Grierson, compliance director at MKC Wealth, believed some firms may be unable to demonstrate to the FCA the steps they have taken to support clients with additional needs.
“Firms may not be identifying vulnerabilities and this may be due lack of awareness and of wider firms systems and controls, but if they are, they may not be able to provide central management information to show what steps are being taken.
“The FCA is increasingly data-led and will expect firms to provide evidence to back their approach to supporting vulnerable clients,” she added.
Dom House, lead consultant at Simplify Consulting, added even within firms where significant effort has been put into identifying different types of vulnerability, only “basic support” is provided for the most common or “obvious” types of vulnerability, with very little in place for “hidden” vulnerabilities.
Ritchie shared his own experience of helping a vulnerable client and said navigating through the complaint process on behalf of the client highlighted to him the “various issues that exist within the industry.”
He said: “An 89-year-old client moving into a care home was provided with unnecessary financial products without proper consideration for their individual circumstances. He passed away three months later, and his beneficiaries were subject to early withdrawal charges, which ran for six years.”
“The FCA's decision to investigate these matters reassures me that regulatory bodies are taking steps to address deficiencies. By spotlighting vulnerable clients' treatment, the FCA's review has the potential to drive meaningful change within the industry, ensuring that vulnerable individuals receive the support and protection they rightfully deserve.”
Training for advisers
Scammell said providing “targeted rather than generalised” approaches to customer support could help advisers to improve their interactions.
House also highlighted the consideration of vulnerability “was not binary” but “transient” and advisers were in the best possible position to assess customer understanding and translate it into the right levels of support for the individual.
He said: “The more advisers can work with the product providers as well, the better the overall support will be. Specifically we would expect advisers to be thinking about how they interact with vulnerable customers, for example the language used in documentation, the format and style of correspondence, not assuming understanding of complex financial matters.”
Ritchie said advisers should enhance their understanding of the diverse needs of vulnerable clients “including those related to physical health, mental health, life events, resilience, and capability.”
“Firms should invest in training programs to enhance the skills and capabilities of their advisers in dealing with vulnerable clients. This could include training on empathy, communication techniques, and strategies for providing effective support and guidance to vulnerable clients,” he added.
Eddie Grant, director at St James’s Place said the development of soft skills was key.
He said: “The FCA’s Financial Lives Survey highlighted that 73 per cent of people do not recognise their own vulnerability. Building empathy and trust with your client is vital to ensuring the right support is offered as clients will be more willing to share their circumstances. These soft skills can be enhanced with the right learning environment.”
Impact of consumer duty
Scammell said it was likely the FCA launched the review to ensure firms were adhering to consumer duty.
He added: “Following the review the FCA could suggest firms refine their systems and procedures to proactively identify and support vulnerable customers, including through the use of customer data.”
Roberts said Pimfa was working closely with the regulator to help provide firms with the “best guidance it can”.
She also said: “The FCA had committed to reviewing firms’ approach/treatment of vulnerable customers in the Feedback Statement on Vulnerable Customer Guidance published in 2021, where it indicated that it would in 2023-24 conduct a review and evaluate the action firms had taken and whether there were improvements in the outcomes experienced by vulnerable consumers. The announcement of the review is therefore not unexpected.”
Ritchie also agreed the introduction of the regulation may have “heightened the awareness” around the treatment of vulnerable clients.
“Feedback from market participants, consumer complaints, and observations made during regulatory activities may have raised flags regarding deficiencies in how advisers and firms handle vulnerable clients,” he added.
Ritchie said he was “hopeful” the FCA’s findings following its review would lead to “concrete recommendations and regulatory interventions.”
“This scrutiny is not only necessary for restoring trust in the financial services sector but also for safeguarding the well-being of those who are most vulnerable in our society."
alina.khan@ft.com
