Remarkable events like a global pandemic bring industry challenges into focus, and the need to support the vulnerable among us is a prime example.
The fallout from Covid-19 is putting some people in a difficult financial position for the very first time, and has created additional pressure for those considered vulnerable long before the UK entered lockdown.
Research conducted by the Financial Conduct Authority in February estimated that just under half of UK adults – roughly 24.1 m consumers – can be classified as vulnerable.
This covers consumers affected by an incredibly broad set of factors, including health problems and life events such as bereavement or redundancy, a lack of financial knowledge and digital skills, and low resilience to financial or emotional shocks.
FCA guidance on the fair treatment of vulnerable customers is under consultation, but advisers will struggle to follow it if they can not identify the clients it applies to.
The reach of Covid-19 could increase the number of people that fit the regulator’s profile and make doing so an even harder hill to climb.
Client segmentation holds part of the answer. Recognising the differences between clients and using this information to meet their needs is at the heart this process.
Segmentation is no longer focused purely on how much money a person has, or whether they are in the accumulation or decumulation phase of their financial journey. Advisers are digging deeper. We are seeing companies categorise clients from a behavioural point of view, factoring in areas such as personal beliefs, lifestyle and their understanding of financial products.
Adopting this mindset, and achieving a deep understanding of clients, can help advisers identify and support the vulnerable. But doing so manually is time consuming, particularly for companies with a large roster of clients. This is where technology that supports client segmentation comes into its own.
Innovation in this space is most commonly discussed in the context of another area of FCA focus – suitability of advice.
It is a requirement of the Product Intervention and Product Governance Sourcebook to make sure the investments advisers choose for their clients are suitable. The FCA also recently highlighted the importance of treating attitude to risk as separate to metrics such as capacity for loss when determining what investments are appropriate.
There are a number of solutions designed with these regulatory responsibilities in mind. On platforms, Centralised Investment Propositions and Centralised Retirement Propositions help advisers segment clients to ensure the outcomes they deliver serve their best interests.
The evolution of these applications will help advisers tailor the services they offer clients based on their objectives and needs, both in the context of suitability and vulnerability.
But, at a higher level, advances in platform technology in every area, from client reporting to onboarding, will help advisers address another issue directly linked to their ability to support the vulnerable – the industry’s capacity problem. Put simply, not enough people have access to financial advice.