RegulationSep 8 2022

How to accommodate clients’ changing vulnerability

Supported by
Standard Life
twitter-iconfacebook-iconlinkedin-iconmail-iconprint-icon
Supported by
Standard Life
How to accommodate clients’ changing vulnerability
(Suzy Hazelwood/Pexels)

Firms are already obliged to communicate in a way that is clear, fair and not misleading under the regulator’s seventh principle. But the new consumer duty, which comprises a ‘consumer understanding’ outcome, goes further.

Broadly speaking, the duty requires firms to:

  • Support their customers’ understanding;
  • Tailor communications, considering the characteristics of the intended customers;
  • Tailor communications to meet the information needs of the customer during direct, one-to-one interactions; and
  • Test, monitor and adapt communications.

“The consumer duty will require advisers to tailor communications for customers differently based on the needs of the target market as well as individual vulnerability characteristics,” says Louis Williams, head of psychology and behavioural insights at Dynamic Planner.

“Advisers can create target markets considering a range of attributes of a particular cohort of clients such as their age, wealth, willingness to take risk and views on sustainable investing.

"Defining a target market can then allow bespoke reports to be developed to meet clients’ needs."

Phil Young, director at marketing agency ClientsFirst, likewise suggests using client personas.

“They are a representation of the ‘ideal’ clients we are targeting. For a financial advice business, this might be a 55-year-old business owner who is about to sell up and wants to know how to mitigate tax; or a 67-year-old retiree who wants to know if they are likely to run out of money in retirement.

“Importantly, the persona will go into detail about what that persona’s likely communication preferences are, how they want information presented, what buttons to press and which to avoid when meeting them for the first time.”

Vulnerability not a new concept

While there are references to vulnerable clients throughout the duty, Mark Greenwood, director of compliance services at SimplyBiz, says it does not divert from regulatory guidance on vulnerable customers from February 2021.

“Having processes to ensure the fair and appropriate treatment of vulnerable clients is not a new concept and should already be embedded within firms, with policies in place for both initial assessments and ongoing reviews.

“The consumer duty reinforces previous guidance from the regulator on the fair treatment of vulnerable customers, and makes it very clear that firms can expect to be asked to demonstrate how their business model, the actions they have taken and their culture ensure the fair treatment of all customers, including vulnerable customers.”

For example, part of an initial fact-find should be about identifying coping strategies – which often people with impaired communication have developed – for each client and discussing how they can best utilise them, says Tim Farmer, co-founder and clinical director at Comentis, a cognitive assessment engine provider.

Another key consideration in relation to communication is the amount the adviser is trying to communicate and over what time span.Tim Farmer, Comentis

Technology is useful for tailoring communications, says Williams at Dynamic Planner.

When it comes to vulnerable customers for example, report writers can allow advisers to edit content such as by including more visuals, as well as modify stylistic features such as colour-blind-friendly palettes and larger font sizes.

Advisers also need to be mindful of the amount of information that is being communicated, says Farmer.

“The amount that a person can process and understand at any one time will vary depending on that individual’s situation and age. Research tells us that a 75-year-old can only process information at 25 per cent of the speed of a 20-year-old.

"Then there is also the issue of concentration and engagement. Research varies on the length of time an adult can concentrate for, ranging from eight seconds to 15 minutes; but either way, it is not a vast period of time."

He adds: “As such, another key consideration in relation to communication is the amount the adviser is trying to communicate and over what time span. Again, this will vary from customer to customer.”

Evolving needs

A survey of 100 advisers found that half had formally sought to identify which clients may be vulnerable in the previous six months, and three in five recognised half of conditions relating to vulnerability.

While an initial fact-find may not reveal elements of vulnerability, such characteristics may emerge subsequently. Research by the FCA during the pandemic, for example, found that more consumers found themselves in vulnerable circumstances due to Covid-19.

Likewise, a customer that showed signs of being vulnerable 12 months ago might not display the same signs today, says Chris Smeaton, head of propositions at Seccl.

Advisers will need to ensure they have empathy and emotional intelligence to communicate appropriately with different types of customers.Louis Williams, Dynamic Planner

“This means firms need to develop methods of monitoring and measuring customers and their needs on an ongoing basis, to ensure its adjustments remain valid and appropriate for a range of customers in different situations,” Smeaton adds.

Indeed, long-lasting implications of the pandemic and the current cost of living crisis mean advisers need to focus on changes to a client’s income and expenditure during reviews, says Greenwood at SimplyBiz.

“Big shifts in this area alone might be enough to indicate the presence of vulnerable characteristics,” he adds.

Regardless of the client, within all forms of communication the information needs to be concise, in simple English, jargon-free, and consider clients’ financial knowledge, competencies and mathematical abilities, says Williams at Dynamic Planner.

“In some circumstances it will not be possible to have access to technology to communicate effectively, and therefore advisers will also need to ensure that they have empathy and high levels of emotional intelligence to communicate appropriately with different types of customers.”

Chloe Cheung is a senior features writer at FTAdviser