Protection review

Practicalities of assessing customer vulnerability will be tough

Mike Allison

head of protection, Paradigm Mortgage Services

When writing here in the past, I have identified the need to consider carefully the treatment of vulnerable customers.

The subject should not be a new one for any financial services practitioner, and each and every firm should have a process for identifying and dealing with such customers.

By the time you read this, the new Consumer Duty rules will have been published, and the anticipation has to be that little will have shifted in terms of the FCA’s thinking.

In the consultation paper published last December, the phrase “vulnerable customer” was used over 40 times. The principle of the importance accorded to vulnerable customers will not change, especially as we move to a more outcomes-based world as opposed to a rules-based one.

That focus has been strengthened further by the recent ‘Dear CEO’ letter sent by the FCA to 3,600 firms telling them of the need to have robust processes and procedures to identify vulnerable customers “as soon as possible” and ahead of the new Consumer Duty rules. Not only that, but the FCA also issued an update on the fair treatment of vulnerable customers, emphasising the same points.

It cannot be an accident of timing that this letter has been sent against the backdrop of the current cost-of-living crisis in which the FCA estimates nearly one in three adults are suffering low financial resilience.

Let’s not get carried away that the Consumer Duty piece is only about vulnerable customers – that is only a part of it. But that part is definitely attracting a huge focus.

Every single person who has contact with a client within a firm will have some responsibility to identify and deal with vulnerability, but they cannot ask direct questions on the matter. And of course vulnerability is not only financial; there are many other traits that clients may exhibit or circumstances they may be in that could lead us to think of them as vulnerable. These include bereavement, divorce, physical illness, and others that may be described as more obvious.

Others are less obvious – perhaps poor memory, low literacy or numeracy, and even conditions like dyslexia, which affects 10 per cent of adults in the UK according to UK government data from 2017. Then there are the potentially hidden issues, such as dementia, cognitive decline, duress, and learning disabilities, which may affect somebody’s ability to make decisions, never mind a financial decision of enormous impact, such as a house purchase or moving a pension.

We should recognise that advisers have a tough job in identifying client needs in this respect and trying to meet them without the skills of clinicians – and of course the regulator will not expect us to have such skills.

What they will expect, however, is a robust, consistent process to try to identify vulnerability, with a clear outcome-based plan when any potential vulnerability has been identified. This plan may be deferring a purchase or simply not giving advice, which may not sit naturally with all advisers.

Potential vulnerability should therefore be identified early in the engagement process.

Where firms fail to meet their obligations to treat customers fairly, be in no doubt that the regulator will take action – and, in fact, has already engaged with firms that aren’t meeting their obligations.

What is also clear from communications is that fair treatment of customers in vulnerable circumstances should apply across all business areas.

Indications are that those falling short of the current standard are simply not monitoring the information about identification of customer vulnerability – put simply, there is a vulnerable customer ‘plan’ in place, but there is no evidence to support its use or effectiveness, or indeed any buy-in from senior management.

At Paradigm, as a consulting compliance business as well as a distributor of products, we are working to help all our firms arrive at the right decisions when it comes to Consumer Duty generally and vulnerable customers specifically – especially where it fits into the role of senior managers within firms.

In addition to having produced free information on the Consumer Duty, via our website and our work on audit processes for being Consumer Dutyfit, we are in discussions with various third parties, such as Comentis, that are developing solutions not only to identify vulnerable clients but also to provide a support framework with clinical expertise to deliver clear outcomes for clients – a phrase that we will hear again and again.

A final word on vulnerable customers – for now, at least: Do not leave it until the proposed Consumer Duty implementation date to act on your vulnerable customer policy. The requirement to identify and act is upon every practitioner and employee now, and lenders and providers of insurance are working on their own frameworks to ensure advisers have such policies in place and are using them. M I