A. Financial difficulty refers to the situation when a client cannot meet financial commitments. This is hardly a new concept, but it has never felt more relevant for such a wide range of people.
More than seven months into the pandemic, we are still struggling with the spread of Covid-19 and its impact on our everyday lives and financial plans. And with the very real possibility of lockdown 2.0 on the horizon, the future looks anything but certain.
There have been measures in place to support businesses, employees, the self-employed and borrowers throughout the pandemic, but despite the extension of some support schemes, most measures will soon come to an end.
Some might not be able to afford their mortgage, rent or loan repayments once payment holidays stop. Others will have been made redundant or furloughed, taking on more credit or dipping into their savings just to bridge the gap.
Advisers should be aware that this is a crucial tipping point – clients could easily fall into financial difficulty, even if they have fared well so far.
The FCA published ‘Coronavirus and customers in temporary financial difficulty: guidance for insurance and premium finance firms’ earlier this year, from which we can all extract some helpful insight and it is still as relevant as ever. Here are my top tips.
• Be proactive. There is no obligation on advisers to contact clients who could be experiencing financial difficulty, but as it is a sensitive topic for many, some clients might not feel comfortable reaching out, so take that first step for them.
This is a good opportunity to build lasting relationships and show you are there for them in the hard times as well as the good.
• Expand your reach. It is also worth considering your target market and business model.
• People benefit from ‘proactive advice’ – preventative action that helps them avoid getting into financial difficulty in the first place.
• There is an opportunity here to engage with new markets before they reach crisis point.
• Bear in mind that some potential clients might be cautious about entering into a long-term relationship, so think about how you could offer ‘one-off’ advice for those who need it.
• Get your staff up to speed. Have measures in place to ensure you are delivering an adequate service to those struggling. Train your staff on key issues like vulnerability, enabling them to signpost clients to organisations that can help if needed, making sure your processes support them doing so.
• Be the voice of reason. Ensure your clients are not making financial decisions based on panic. You might need to educate them on their options and reassess their risk-profiles if needed. Any actions you take should have their long-term interests at heart.
Ultimately, this is about the industry stepping up to the plate, and it almost always comes down to culture. Do you have a strong and supportive culture that puts clients first? Are your systems and controls robust enough to ensure good outcomes for those in difficulty?
Getting your culture right will make all the other stuff so much easier.
Alejandra Gorría Zaldivar isa regulatory consultant at compliance consultancy TCC