Articles - Fair Treatment of Vulnerable Customers

The FCA’s latest consultation paper, Guidance for firms on the fair treatment of vulnerable customers (GC19/3), provides more guidance and a general definition of vulnerability, a set of characteristics that may indicate vulnerability along with examples of the actions to mitigate potentially bad outcomes.

 By Fiona Tait, Technical Director, Intelligent Pensions
 Identifying vulnerability
 A vulnerable customer is one who is more susceptible to detriment than the standard customer as a result of one or more factors which make it more likely that detriment could occur to them, and that any detriment could have a greater impact on them.
 The paper provides a list of “drivers” which are indicators of potential vulnerability, and which firms can use to help their front line staff to identify possible issues, particularly within their own target market.
 The drivers are split into 4 groups, some of which are clearly more relevant to certain markets. For retirement planning, particularly in the run up to and during the period when a customer is looking to take an income, there is a fairly high chance that any one or more of these conditions may apply at some point.
 1. Health
 This is an obvious driver of vulnerability, where a client has a medical condition which means they cannot carry out certain basic tasks such as reading documents or attending meetings. Where the impairment is physical it is usually more easily identified and likely to be disclosed in the fact-find. Mental conditions are harder to spot, but if they have been previously diagnosed it would be reasonable to expect disclosure of this.
 Customers approaching retirement are more likely to have a health condition and the relationship between an adviser or pension scheme with the individual, can be a long and enduring one. As clients age the probability of both physical and mental illness increases and firms must look for tell tale signs and be ready to take protective action. We are not expected to be medical experts, but if a client is finding it more difficult to remember what happened last year, or makes increasingly inconsistent decisions this could be a concern.
 2. Life events
 Major life events such as bereavement or relationship breakdown may make decision-making particularly harder. An ageing client base means that the loss of a partner becomes more likely and the divorce rate is increasing fastest within older age groups.
 Regular communications with clients should make it easier for them to inform you when a life event occurs, for many clients this may well be the first point of contact. Extreme tact and patience are essential in this situation and it may be a good idea to have specialist staff who take over in this situation.
 3. (Lack of) resilience
 This is defined by the FCA as an inability to withstand financial or emotional shocks, and could either be temporary following a significant life event, or a more general attitude. Generally people’s ability to withstand sudden shocks decreases with age and this may mean that certain products and services become less suitable, although care must be taken if the situation is likely to change.
 If a client sustains a financial shock advisers should consider not just the effect on their overall dependence on their pension income, but how it might affect future decision-making.
 4. (Lack of) capability
 Many clients lack knowledge of financial matters and have little confidence in managing money, yet they are expected to make some very difficult and significant choices. The industry is also riddled with jargon which increases consumers’ misunderstanding and distrust.
 Supporting vulnerable clients
 GC19/3 contains a number of examples of good practice. The guidance is not mandatory and firms can decide if the suggestions will work for them. It is noticeable that the guidance could potentially be used in cases of enforcement, meaning firms should have a strong rationale behind the use, or not, of the guidance material.
 Some things are however clear. Communications are key. The better firms are at communicating with their clients, the more likely they are to be able to identify and support vulnerable customers. Asking clients how often and by which methods they want to deal with you is not just about identifying vulnerability but makes for a better relationship. Ultimately, doing your best to understand the individual needs and preferences of every client or member is good practice and there is perhaps some rationale for treating every client as potentially vulnerable.

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