Deep thinking required on client vulnerability

28 May 2021

It's nearly two years since the Financial Conduct Authority (FCA) published its seminal ‘Guidance Consultation 19-03' on the treatment of vulnerable customers and three months since the regulator concluded its final guidance entitled: ‘FG21/1 Guidance for firms on the fair treatment of vulnerable customers'.

Both documents are lengthy, the final guidance document runs to a daunting 56 pages. However, it's one of the more critical areas for providers and advisers alike to get right, not least because in between the publication of the guidance consultation in mid-2019 and the arrival of FG21/1 in February 2021, the UK lost more than 120,000 of its people to Covid-19 and many thousands more have been rendered vulnerable as a result the effects of the pandemic.

The number of people made vulnerable has risen substantially over the last year: in February 2020 as Covid-19 reached our shores 24.1 million or 46% of the UK population were estimated to be vulnerable. However, just one year on in February 2021, 35.8 million or 53% of the UK population was estimated to be vulnerable. That's an alarming increase in just one year.

Defining Vulnerability

So, who classifies as vulnerable and what do we need to do to ensure we do right by them? According to the FCA, 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."

According to the regulator, there are many reasons a person may be classified as vulnerable. These may be related to health, the impact of a life event, resilience, capability, or a combination of all these:

It's increasingly clear to regulated firms that they must build processes, systems and procedures for spotting vulnerable customers and supporting them in an effective way to ensure they gain the best possible financial outcomes.

Implications for record-keeping

Regulated parties must sensitively record, review and be in a position to report on the status of vulnerable customers over time. Dunstan Thomas is already adapting its own systems to help providers do just this for vulnerable policyholders of pension schemes that are administered using Imago Administration. However, an early show stopper for me is on the very first page of the Introduction of FG21-1, Point 1.3: "We want vulnerable consumers to experience outcomes as good as those for other consumers and receive consistently fair treatment across the firms and sectors we regulate."

So, be in no doubt that you need to ensure that your vulnerable customers have outcomes at least as good as those for your other ‘non-vulnerable' consumers. So, there is no excuse for failing to spot that a customer is subject to a vulnerability (however temporary); thereby failing to provide the dedicated additional support needed to help them.

Diagnosing Vulnerability

There are definitive life events and health conditions which might trigger vulnerability. Those on the front line will need the skills to be able to listen out for the clues. It might be a customer calling up to reduce premiums because they've recently lost their job, or perhaps been forced to go part-time because they've suddenly had to become the primary carer for a partner who is recovering from a major operation or has so-called ‘Long Covid'.

As the FCA warns: "If firms do not understand the characteristics of vulnerability of their target market and main customer-base and so fail to ensure staff, product and services meet these needs, customers may suffer poor or inconsistent outcomes or increased risk of harm."

It's about building the skills and capabilities of front line staff to recognise and respond to the needs of vulnerable customers. It will be important to understand:

• Nature of the vulnerability a person is suffering from
• Scale of that vulnerability
• Impact of that vulnerability

It's going to be important to create space in any interaction with customers in which you enable them to disclose their needs. Simultaneously, you must train staff to spot signs of vulnerability and make them aware of relevant support that is available to them, including hand-offs to expert third parties if it's in their best interests to arrange this.

Early Warning Signs

Behaviours that front line staff may need to look out for might be evidenced by:

• Heightened stress levels (which seem out of proportion with event or issue at hand)
• Seeming lack of time being set aside for important decisions
• Financial matters being put off indefinitely
• Evidence of emotional toll limiting analytical capabilities
• Narrowed perspective
• Impulsive or even reckless financial decision-making

According to the FCA's Principle 6 linked to treating vulnerable customers fairly, "firms need to understand the needs of vulnerable customers to pay due regard to their interests and treat them fairly".

The way firms respond to vulnerability can increase or reduce the risk of harm. One obvious example of increasing harm is financial exclusion. According to the FCA, more than 3 million people with disabilities have been turned down for insurance or charged more by insurers.

Think about the way you communicate - does it fit vulnerable clients' needs?

It's also important to consider how you communicate with vulnerable customers and how you let them communicate with you. Is your approach the right one? If you are encouraging a client to put their query in writing by email, are you creating a barrier for that client who has already demonstrated low digital capability?

Perhaps you've asked a client to read a very long and complicated document on-screen before signing authorisation to proceed - all without checking their literacy levels. One in seven UK adults has literacy levels at or below those expected of a 9-11-year-old. Are you communicating with someone who is in this vulnerability group?

Make sure you are offering customers the communication channel which is right for them at that time. In addition, you may need to adjust outbound communication to vulnerable customers to avoid increasing risk of harm if evidence suggests some communications may have a negative impact - perhaps promoting anxiety or rash decision-making in some vulnerable groups.

Importance of access to specialist knowledge

One new issue which providers need to have early warning signs on is financial abuse. Providers now need to be able to spot the signs of customers being denied financial access by an abusive partner. This is a specialist area that might well demand partnering with an expert charity to support customers which indicate that they might be unable to access accounts, perhaps for a reason which does not seem likely or normal.

Dementia is another growing issue in the UK, partly because we have a rapidly ageing population. 5.4 million Brits are over 75 today and we now have 1 million dementia suffers across the country. That figure is set to double to 2 million by 2050 as the population continues to age. Vulnerable customers with dementia may well need specialist support.

Blocks on particular types of expense may need to be put in place to protect dementia sufferers financially. This may need to be done in discussion with carers and those with Power of Attorney. You may need to train up ‘super users' in growing vulnerability areas like dementia sufferers so that other front line staff can come to them for help and advice if it looks like conflicting instructions are coming in from a vulnerable customer.

MI-based monitoring & learning

Management information (MI) needs to help spot the risk of poor outcomes and enable firms to act fast to avert these. FCA guidance even requests firms to implement quality assurance processes ‘throughout the whole customer journey', highlighting areas where:

• the performance of staff has led to poor outcomes for vulnerable customers
• products or services unintentionally cause harm to vulnerable customers
• customer service processes are not meeting vulnerable customers' needs

Some firms may wish to consider carrying out proactive data analysis to identify where customers are more likely to suffer harm when things have gone wrong or where patches of poor staff knowledge and performance are evident. Firms may want to consider the following four aspects of their customer relationships in their monitoring:

• Decision making: are products/services meeting the needs of customers when providing information and support to make decisions?
• Engagement throughout the customer journey: is customer service and communications meeting the needs of vulnerable customers? Are customers experiencing difficulties effectively engaging with them throughout the customer journey?
• Disclosing changes in circumstance/needs: are vulnerable customers supported and encouraged to share information about their circumstances or their needs?
• Suitable products: are customers able to access products/product features that are suitable and that meet their (changing) needs?

Finally, you need to be measuring the extent of people's vulnerability: tuning products, services and support to their needs throughout customer journeys. You must be measuring outcomes and iteratively adding specialist support where it is needed in growing areas like dementia. There is a great deal to think about and plan for. But it all starts with an emphasis on customer dialogue and strong, repeatable reporting of those important conversations.

Deep thinking required

If you are not spotting those early signals, then opening up opportunities to identify customers' type and level of vulnerabilities and creating space for dialogue about how best you can support them in that vulnerability, you are unlikely to be treating vulnerable customers fairly down the line.

There is much in this final guidance which requires deep thinking. Thankfully, there are also several strong examples of good and poor practice flagged throughout the document. What is clear from its reading is that the time for tolerance of failure to spot the vulnerable in your customer base is fast running out.

by Paul Creighton-Williamson, Product Owner of Imago Administration at Dunstan Thomas.
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