The FCA is expecting strong processes to meet the needs of vulnerable clients. So what does best practice look like? Jonathan Howard explores the options...

The current cost of living challenge is redefining the vulnerability of individuals. Research last year by the Financial Conduct Authority (FCA) found that 24.9 million UK adults,  almost 50% of the UK population, could be classed in one or more ways as ‘vulnerable'.

This broad definition of vulnerability can make it difficult to identify even with regular face-to-face contact, especially if the client chooses not to disclose information, suffers intermittently or develops coping mechanisms to mask signs. Advisers need to be able to manage this.

With the recent Consumer Duty deadline, advice firms' approach to vulnerability has been pushed further into the spotlight. The FCA is expecting strong processes to meet the needs of vulnerable clients. So what does best practice look like?

Understanding the risk factors

The regulator defines a vulnerable consumer as those "who, due to their personal circumstances, are especially susceptible to harm, particularly when a firm is not acting with appropriate levels of care". It outlines four key drivers of vulnerability:

  • Health conditions or illnesses that affect ability to carry out day-to-day tasks
  • Life events such as bereavement, job loss or relationship breakdown
  • Lack of resilience to withstand financial or emotional shocks
  • Low knowledge of financial matters or low confidence in managing money (financial capacity) or low capability in other relevant areas such as literacy or digital skills.

The guidance expects firms to:

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

Consumer Duty rules also make multiple vulnerability references, suggesting firms tailor customer service support and communications to ensure good outcomes for vulnerable clients.

So with the clock ticking to Consumer Duty implementation, what should you be doing to make sure you are meeting the needs of all your vulnerable clients?

Robust, consistent processes

Accessing vulnerability isn't a one-off assessment. The FCA is clear that everyone is at risk, and that vulnerability can be temporary, intermittent, or could occur after you start working with a customer. So an ongoing dialogue is critical throughout your relationship.

Some life events such as bereavement or redundancy, are likely to appear through the normal course of your discussions. Certain health conditions may be obvious, but always check how you can best support your client, rather than stereotyping or making assumptions.  

Some vulnerabilities, such as hearing or sight degeneration, cognitive decline, or chronic health conditions, can become more likely with age. Vulnerabilities can be hidden, especially those concerning resilience and capability, and your client may not even see themself as vulnerable.

Given the challenge of identifying vulnerability, having a consistent process is crucial:

  • Create guidelines covering actions in different circumstances, with the flexibility to adapt to the individual,
  • Document all conversations around vulnerability so there is a clear audit trail, including any agreed actions, or decisions not to act, and the reasons why,
  • Implement the proposed action as required, be it internal, like communication preferences, presenting information in a different way or simply checking in more frequently, or signposting to external support.

While you may select specific members of your team for training and responsibility for managing in-depth discussions around vulnerability and additional support, your whole team should be trained to recognise warning signs. You should encourage customer-facing staff to have conversations with clients where they take the time to properly listen and ask questions, raising any concerns as appropriate.

Vulnerability is a complex and often subjective area. By playing to our professional strengths and continuing to foster close client relationships, encouraging open, empathetic conversations, backed up by clear, consistent processes and documentation, not only will you meet the regulatory requirements, but you'll also be better equipped to support all your clients in achieving the best outcomes.

Jonathan Howard is chief executive (CEO) at Richmond House Group and regional CEO for Home Counties and East Anglia at IWP