Nearly a decade on from its "Occasional Paper No. 8", which first raised the issue of consumer vulnerability, the Financial Conduct Authority is reviewing firms’ progress at getting to grips with ensuring vulnerable customers are treated fairly and not disadvantaged.
Due by the end of this year, this review comes hot on the heels of the retirement income advice thematic review (TR24/1), which raised a few concerns.
It said: “Our findings show that while firms have thought about the needs of vulnerable customers, they were not implementing vulnerable customer processes in an effective or consistent manner in several areas. This risks poor outcomes for these customers.”
Consumer vulnerability is a complex and wide-ranging issue.
The FCA definition – “A vulnerable customer is someone who, due to their personal circumstances, is especially susceptible to harm, particularly when a firm is not acting with appropriate levels of care” – raises many more questions than it answers.
We’ve seen the industry making great efforts to get to grips with the ramifications of the vulnerable customer policy and now the regulator wants to test if that work is bearing fruit.
Are vulnerable customers being identified, supported and protected?
Vulnerability can be present at any age but it is in the years leading up to and through retirement that we encounter some of the biggest changes in our physical, emotional, mental and cognitive health.
The thematic review reinforces this view, stating: “For customers in decumulation there is a higher likelihood that they have characteristics of vulnerability. So, it is important that firms have a plan to ensure services are proactively delivered.”
Among the FCA’s concerns are deficiencies in firms’ fact-finding and records, so that potential vulnerability is not being identified, recorded or explored – even where the information recorded suggests vulnerability may well be present.
The regulator is also focused on how robust the review process is, again with particular concerns around retired clients where factors such as changes in income needs, health, risk profiles, objectives and wider family circumstances can change quickly.
Guidance on the fair treatment of vulnerable customers reminds firms they need to understand the needs of their customers on an individual basis, ensuring employees have the skills and capabilities to recognise vulnerabilities and monitor if those customers’ needs are being met.
More recently, the consumer duty has lifted the bar higher with an expectation on firms to understand how well their vulnerability policies are performing among customer groups, such as those with characteristics of vulnerability, so the firm effectively has a warning system for poorer outcomes.
Most of the firms surveyed for the thematic review – 952 out of 958 – said they had implemented policies to help them identify vulnerable customers, with only six stating they had no policy in place.
The vast majority of these firms were prepared, for example, to include friends and families in advice meetings, to provide home visits, to use face-to-face advice rather than relying on online or paper communications.
