With Consumer Duty requirements set to take effect in Q2 2023 and ahead of the final rules being published – expected in July 2022 – firms should consider the FCA’s findings in relation to how firms are dealing with vulnerable customers so far.

In February 2021, the FCA published FG21/1 ‘Guidance for firms on the fair treatment of vulnerable customers’. This guidance indicated that, to achieve good outcomes for customers in vulnerable circumstances and ensure that those outcomes are as good as for other customers, firms should …

• understand the needs of their target market/customer base
• make sure staff have the right skills and capability to recognise and respond to the needs of customers in vulnerable circumstances
• respond to customer needs throughout product design, flexible customer service provision and communications
• monitor and assess whether they’re meeting and responding to the needs of customers with characteristics of vulnerability and make improvements where this is not happening

One year on from the launch of the guidance, the FCA reports that they have seen good examples of individual firms taking positive action to understand the needs of customers in vulnerable circumstances and meet those needs. However, they have also seen inconsistent practice and identified areas where firms will be expected to improve. The FCA stated “Where firms fail to meet their obligations to treat customers fairly, we will take further action. We have already engaged with firms that aren’t meeting their obligations and have agreed remedial steps.”

The Regulator expects more consumers to display characteristics of vulnerability as the current inflation and cost of living pressures are felt. All firms will be expected to provide their customers with appropriate support and care.

What is an appropriate level of care?

The level of care that’s appropriate for customers who have characteristics of vulnerability may be different from that provided to others, and firms should take particular care to make sure they are treated fairly and in a way that meets the individual needs of those customers. The word ‘individual’ important here. People will be vulnerable for all sorts of reasons. But despite the continuing flood of articles around this topic focusing largely on identifying vulnerability,  it is essential to remember that identifying a vulnerable individual is only the first, and arguably the easy part, of the job.

There are two stages in dealing with vulnerable clients …

• identifying a vulnerable client and
• providing an appropriate response.

We have written about this previously (see here) making the point that the obvious vulnerabilities, vision impairment etc. imply obvious responses but there are many vulnerabilities that are more subtle or difficult to pin down and where the appropriate response is much more difficult to deliver, assuming it is even possible for the firm to deliver that response at all!

In addition, it is worth noting that a single individual could require more than one response depending on the nature of the firm’s involvement with the client. For example, speaking to a client about a term assurance is likely to have low inherent potential for harm. However, discussing, say, a pension transfer or equity release with the same client would indicate a different and even more careful response. So, duty of care is not an absolute matter, it varies not just with the individual client but also with the scenario that is in play. Accordingly, having some sort of vulnerable client ‘flag’ on a back office system is too simplistic. And not sufficient in isolation.

Good practice

Some examples of firms taking positive action are listed below …

• using customer account and spending data to identify those at risk of problem gambling – and offering support and opting those customers out of credit marketing in response
• offering safe spaces in branches for victims of domestic abuse
• including education for linked brokers in their vulnerability strategies
• involving customers in the product and service development process, for example, through focus groups with customers with lived experience of vulnerability and engagement with relevant charities
• taking inclusive design approaches to products and services.

These clearly come from the FCA engagement with large financial institutions and so are not directly of much relevance to individual adviser firms. However, you get the general thrust. In particular, Management Information (MI) may well play an important part in the firm’s approach to identifying and dealing fairly with vulnerable clients.

Monitoring and evaluation

The FCA expects firms to produce, and regularly review, management information (MI) on the outcomes they’re delivering for customers in vulnerable circumstances. The guidance includes examples of the types of MI that a firm may want to collect, including customer feedback whether requested by the firm or tacit, i.e. implied by a situation, for example a client terminating the relationship with the firm.

But the FCA’s findings indicate that firms should not rely too heavily on the use of complaints data. A complaint is not a symptom of vulnerability but could be an outcome. A client’s vulnerability will exist before a complaint is received.

Of course, MI in this respect relies on data on client needs having been captured in the first place. And that MI should ideally allow staff access to systems where all information captured about a customer is available in a single place.

Culture and principles

Arguably, Consumer Duty, like its predecessor TCF, is more difficult for firms to get to grips with than a ‘rule’ is precisely because it is largely based around principles and requires firms to have an appropriate culture. Principles and culture are much more nebulous than rules, but a good starting point is for the firm’s senior people to visibly lead how all clients but, in particular, vulnerable clients are dealt with. The FCA has stated, “Where we have seen firms with well-developed vulnerability strategies, we have tended to see senior leaders that are involved, accountable and invested in the work. Conversely, where we have seen firms with strategies in need of improvement, evidence suggests senior leaders have less oversight and are providing less direction.”