Vulnerable customer guidance isn’t a ‘one and done’ exercise

At this point in the pandemic it probably goes without saying that we’re all feeling a bit battle weary. I certainly wouldn’t blame anyone if they’re finding it a hard thought to roll up their sleeves and get stuck into the FCA’s Finalised Guidance for firms on the fair treatment of vulnerable customers. However, its arrival is arguably very timely because the last 18 months or so have really brought home why client vulnerability is such an important, and very real, issue.

The guidance is also wide ranging and covers all areas of financial services so we’re going to drill down into the detail that matters most for advisers and look at some of practical steps firms could – and should – be taking as a result.

One of the most important points to recognise is that identifying client vulnerability isn’t a one-off job. Helping a client navigate extremely difficult life events cuts to the heart of the value that most advice firms provide. And therefore, your approach for this type of situation should be an exercise in continuous improvement.

The FCA makes this clear by stressing the need to build in an element of ongoing monitoring, learning and development across the three main stages it outlines for a firm’s approach to vulnerable customers, each of which you can see in the infographic below.

Adviser firms should think about vulnerability as a spectrum of risk. Essentially, there is a chance that any customer could become vulnerable but this risk is increased by certain characteristics. The potential circumstances surrounding vulnerability can feel vast so, helpfully, the FCA has outlined some examples which you can see in another infographic below. However, this is no way an exhaustive list and the key here is for an adviser to think about what circumstances might specifically apply to their own clients. Covid has been a big lesson for how something that almost none of us even thought possible quickly became all too real. And while no one can predict the completely unexpected, advisers should operate on the assumption that circumstances around a customer’s vulnerability can and will evolve.

The FCA’s four drivers of vulnerability and the characteristics associated with each of these:

Developing a more in depth understanding of what constitutes vulnerability is a big piece of the puzzle and the next step of course is putting this into action across your advice firm, so where to begin?

As the FCA highlights, your approach for vulnerable customers should cover your services, the communications your clients receive, and also the products they invest in. And a fairly simple but nonetheless effective way to monitor and assess the quality of your services and communications in particular will be to ask your clients using a survey. This should give you a great view of whether you are meeting clients’ needs at whichever point of life they’re currently at, as long as you remember again that this will change over time, so a survey is something you’ll almost certainly want to return to in the future.

Vulnerability should be added to the list of considerations when identifying the needs of your target clients in line with the PROD rules. And it should also be factored in as part of your platform due diligence requirements, alongside the broader points around suitability.

And last but by no means least, it’s really important that both the directors and managers within a firm give careful consideration to exactly who needs training to help recognise and respond to vulnerable characteristics in customers. It shouldn’t just be advisers who receive this training but all frontline staff - essentially anyone who is customer-facing across the business. And, providing emotional support for these staff members is equally vital, as many advisers will already be aware of, having struggled themselves with the tragic consequences of the covid pandemic and the impacts on their clients’ health.

That’s quite enough to chew over for this month’s article but I have a strong feeling that the conversation around vulnerable customers is far from over, nor should it be. It’s a perfect example of the type of subject where the industry and advice community needs to keep talking to one another because the individual experiences of advisers, both the situations they’ve encountered with vulnerable customers and how they’ve responded, are something we can all keep learning from. And, crucially, sharing these experiences also helps create a support network for advisers as they tackle some of life’s most difficult challenges on behalf of their clients.

Keep an eye out for Mike’s article next month where he’ll share his views on the FCA’s business plan for 2021/22. And in case you missed it, you can also catch up on last month’s piece from Mike here looking at what the Investment Pathways rules mean for advisers.