How can firms fill the gap between the FCA’s expectations on vulnerable customers and reality?

How difficult is it to spot vulnerability in a customer? Very, if we look to a recent poll conducted by More2Life, which suggested that around 87% of advisers felt it was difficult to identify vulnerability. This is matched by our experience, with a clear up-tick in queries from firms on process design and customer identification following a series of publications on the subject by the Financial Conduct Authority. As fair treatment of vulnerable consumers continues to be a burning issue in the financial services industry, we’ll take a look at what the Regulator expects from firms in this area.

The FCA closed consultation on their proposed guidance on the fair treatment of vulnerable customers, released in draft form in July this year, on 4th October. Within the consultation, the Regulator estimates that around half of all adults, in reality, display one or more characteristics of being vulnerable. Firms can use this figure to benchmark against their own records to estimate whether staff are likely to be accurately identifying vulnerability in customers.

While meeting regulatory expectations is clearly a factor, the fair treatment of vulnerable customers makes good commercial sense as well; flexible treatment makes it more likely that the customer will engage, meaning that firms spend less time and resources chasing payments. Early intervention and fair treatment can also contribute to good reputation and loyalty and repeated custom.

The FCA aims to ensure that firms embed a fair treatment culture throughout the business of the firm, with a focus on vulnerable customers right from product conceptualisation. A significant element of the Regulator’s expectations is ensuring that frontline staff have the skills and capabilities to properly identify vulnerable customers, which is vital if firms are to identify the most appropriate support options for the customer. Some signs of vulnerability are widely recognised, but it is clear that uncertainty remains.

How can firms fill the gap between the FCA’s expectation on vulnerable customers and reality?

Frontline staff can be offered support to identify vulnerability; the foundation of this is training. With knowledge of the scope of vulnerability and extending their understanding of drivers, types of vulnerability and consumer experience, frontline advisers will gain confidence and experience and be best placed to spot both common and more rare signs that someone is vulnerable.

The FCA’s proposed guidance makes clear that it expects firms to be aware of and act on more than the commonly recognised types. The Regulator sets out four key drivers of vulnerability – health, life events, resilience and capability - along with examples, which are not exhaustive. But even here, it counts some circumstances as vulnerable that might come as a surprise to firms. While conditions and circumstances that most would recognise appear – physical disability, long-term illness, hearing or visual impairments, and bereavement – some less easily recognised conditions, such as low knowledge or confidence in managing financial matters, poor digital skills and having non-standard requirements (e.g. ex-offenders, care leavers) and caring responsibilities also appear.

The FCA’s own research suggests that while vulnerabilities in the health category might be most easily recognised, in reality only 5% of UK adults are affected, whilst as many as 19% of adults are affected by ‘life events’, including caring responsibilities, bereavement, income shock and relationship breakdown.

Even in relation to commonly understood vulnerabilities, frontline staff can have difficulty spotting them, and often believe that they have to rely on what the customer says and lack the confidence to broach the issue with the customer. The FCA guidance makes clear that firms should make sure their staff have the skills and capability to recognise vulnerability, as they are a ‘vital touchpoint for identifying, recording and responding to vulnerability’.

For staff, there are two key elements, and two touchpoints – recognition and identification, and skills to engage customers to seek more information about their condition. Both steps are vital, but where frontline staff recognise potential vulnerability, they must not assume that they know what the condition is, but work with the customer towards disclosure. Mental health conditions, for example, are complex and diverse and whilst initial recognition may be straightforward, seeking additional information can be challenging.

More commonly understood conditions, such as anxiety and depression, may seem easy to identify, but they can affect different people in different ways, and can lead to the affected individual being reluctant to engage with the firm, particularly where the customer feels they might be penalised, or may make the wrong decision. It is easy to see how calm and supportive frontline staff will help in this situation. Staff can deploy a number of techniques and protocols to aid opening up a conversation with those with mental health conditions to work towards disclosure and information gathering, so that they can choose appropriate support options.

Even more challenging are conditions such as dementia. There is some belief that it is a normal part of ageing, but this condition, which can appear as forgetfulness in its early stages, can lead to a deterioration in memory, thinking and behaviour. Frontline staff may be concerned that there is little they can do to support customers in this situation, but again, using protocols to understand the customer’s experience, alongside the confidence that comes from knowing how and when to involve third parties to assist the customer can have an enormous impact in getting the customer support and to help the customer to stay engaged with financial services for as long as possible.

We have new Compliance Resources aimed to help firms embed the upcoming guidance on the fair treatment of vulnerable customers. This includes a frontline staff training pack – which can be tailored to firms’ individual ways of working - and a guide to FCA expectations.

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