In February, the FCA published ‘Finalised guidance FG21/1: Guidance for firms on the fair treatment of vulnerable customers’.
In launching the guidance paper, the FCA stated:
“… 27.7 million adults in the UK now have characteristics of vulnerability such as poor health, experiencing negative life events, low financial resilience or low capability. Not all people with these characteristics will suffer harm, but they may limit people’s ability to make reasonable decisions or put them at greater risk of mis-selling.
Firms should understand what harms their customers are likely to be vulnerable to and ensure that customers in vulnerable circumstances can receive the same fair treatment and outcomes as other customers. This needs to happen through the whole customer journey from product design through to customer engagement and communications.”
Unfortunately, this and much of the guidance is in the realms of what some might call ‘motherhood and apple pie’ – nobody can disagree with the underlying concept but practical implementation is not so straightforward.
The paper is divided into four main sections …
- Understanding the needs of vulnerable consumers
- Skills and capability of staff
- Taking practical action
- Monitoring and evaluation
… plus a couple of appendices covering data protection and other obligations – the causes of a client’s vulnerability are often linked with sensitive matters that would be considered special category data under the DPA 2018 and require specific consent.
If we take a quick look at the main sections, we can probably assume that most, if not all, firms are able to define vulnerability. There have been numerous FCA papers in recent years and articles galore in the trade media.
A summary of the ‘model answer’ to an exam question on the topic would probably include that vulnerability can be permanent or temporary; causes include; age, infirmity, dementia, other physical or mental disability, change of situation e.g. redundancy / bereavement / divorce or serious ill health or financial difficulty.
And most, if not all, firms can probably point to a vulnerable client policy somewhere. Finally, we believe that several of the back-office software apps facilitate logging of vulnerability. So far so good. That should take care of the first and last aspects covered in the guidance.
However, it is less clear is what firms have done in relation to ensuring all staff are appropriately trained to implement the firm’s policy. Obviously, such training should include the firm’s advisers, as they are likely to a) have most contact with the client and b) be best placed to identify a vulnerability in the first place.
But what about other staff, the administrator or paraplanner who might take calls from the client or the receptionist who is the client’s first contact on calling the office. They need not only to know and understand the firm’s policy but also to have the necessary confidence and skills to deal with clients as is appropriate to their vulnerability. Even with the requisite skills, staff need to somehow know that the client on the line is vulnerable and the nature of that vulnerability. Unless the firm’s telephone system has some capability to recognise caller numbers and automatically flag up that the client is vulnerable, it is unreasonable to expect staff to be able to respond in the appropriate fashion.
That takes us neatly to the final piece of the jigsaw, namely taking practical action. It would be easy to criticise the FCA for 57 pages of guidance and examples, building on previous similar papers, that are mostly aimed at larger firms, but which are, in any case, vague, nebulous and arguably of little help in the real world.
However, therein lies the problem. There are no hard and fast rules because there can’t be. There is only well intended but vague guidance and a smattering of examples for the very reason that there are too many permutations of vulnerability. And it is not possible to generalise. After all, one person might be emotionally devastated by divorce, while another might be ordering champagne!
So, it is no surprise that our experience indicates most firms have at least a passing awareness of vulnerability and a documented policy, some staff training will have been done and perhaps some vulnerable clients are even already logged on the back-office system. But it is often less clear what actually changes where a vulnerable client is involved, or how a suite of suitable responses is created.
There are some obvious vulnerabilities with a fairly obvious appropriate response – a client with dementia should have a nominated person involved in any interactions with the firm, ideally on a formal PoA basis; or a visually impaired client could be offered a recording of discussions or documentation in large font (although text to speech software is now widely and freely available).
Otherwise, it is probably not far from true to say that there are as many flavours of vulnerability as there are vulnerable clients. Despite this, the response we see most often, to the extent that it appears to be the only go to response in many firms, is to invite the client to be accompanied.
The problem with this is that asking the client if they want to be accompanied, does not, of itself, identify if a vulnerability exists or its nature. Neither, if the client is indeed vulnerable, does that necessarily comprise the most appropriate response – some clients, though vulnerable might prefer not to involve other people in their private business.
It should be horses for courses but that doesn’t mean much if the firm only has a one-trick pony!
Advisers can feel vulnerable too!
Hot on the heels of the FCA guidance paper, came the news that a February PFS survey of 165 firms found that 36% said advisers struggled to talk about the nature of vulnerability with the client and around 10% of advisers said they struggled to identify vulnerability.
This came in the wake of the PFS’s January launch of a ‘financial vulnerability taskforce’ to promote greater understanding of clients in vulnerable circumstances, with advisers voluntarily committing to nine pledges under its charter. Again, all good stuff, but more mission statement than practical implementation.
It is understandable that many advisers are struggling with this. After all, discussing difficult topics such as vulnerability with clients is a lot more nuanced than asking a question written on the fact find document. We have already mentioned the inadequacy of asking, “Do you want to be accompanied?” and asking, “Are you vulnerable?” is equally unlikely to be effective.
What advisers need is effective training and assessment around how they can identify there is a story to be teased out. That will come out from the client’s answers to lots of other questions rather than from a direct ‘vulnerability’ question. For example, questions about employment or marital situation are always asked in the average fact find meeting but it is the answer that hints at whether there is more to explore.
- “I was made redundant three months ago and I’m not having much joy in finding a new job.”
This could hint at potential financial worries or even self-confidence/emotional concerns. Further discussion is needed, and advisers must be willing to dig deeper always remaining aware of when the client is feeling uncomfortable with the discussion. And of course, it might turn out that there is no vulnerability in reality but, if vulnerability is identified, the discussion then needs to pin down what assistance the client is anxious to have and how that can best be provided. The ‘standard’ process might not be appropriate – identify what needs to change?
- “I am divorced – as of three months ago.”
Again, this might indicate a vulnerability or none might exist. Only empty champagne bottles or further follow up questions will tell.
As a general rule, open questions are more likely to get the client to talk but some questions might need to be positioned before they are asked to ensure the client understands the purpose of the question. Working somewhere in the vicinity of “Where are you now?” and “How can I help you?” is likely to be a good place to start.