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Unpacking Consumer Duty: Supporting vulnerable customers

Published: 28/06/2023

Customer vulnerability is an issue that has, in recent times, become the focus of much attention. The pandemic and ongoing cost-of-living crisis have highlighted the importance of considering the needs of vulnerable customers, particularly within financial services, writes Steve Allibone, Group Compliance Director for Vitality.

The Financial Conduct Authority (FCA) and wider industry has put much effort into devising regulations and processes to protect vulnerable customers. The new Consumer Duty, which comes into force on 31st July this year aims to strengthen those protections.

In requiring firms to no longer simply treat clients fairly, but instead deliver ‘good outcomes’, Consumer Duty will require everyone in the industry to have an acute awareness of the needs of all clients, including vulnerable customers.

What do we mean by vulnerable customers?

The term can mean different things from one person to another, so it’s critical that firms are equipped with a clear definition and an awareness of what the regulator expects when it comes to meeting the needs of clients who may be vulnerable.

The FCA’s definition of vulnerability embraces anyone especially susceptible to harm, and the wide set of associated vulnerability characteristics provided by the regulator captures the fact that someone who is not vulnerable today may become so at some point throughout their life.

It’s a definition that potentially embraces the young, the old, those living with medical conditions and anyone experiencing a common life event such as divorce or an income shock.

Though not intended to be exhaustive, the FCA’s list of vulnerability characteristics also includes physical disability, long-term illness, mental health, low emotional resilience, bereavement, low financial resilience and a lack of language or numeracy skills. Many of us can expect to exhibit a vulnerability characteristic at some stage of our lives.

According to the FCA, there are four key drivers of vulnerability and examples of characteristics1:

1. Health: Conditions or illnesses that impact day-to-day tasks
2. Life events: Such as bereavement, job loss or relationship breakdown
3. Resilience: Low ability to withstand financial or emotional shocks
4. Capability: Low levels of financial capability, literacy or digital skills

Cost-of-living crisis places customer vulnerability in sharp focus

Whilst understandably characteristics such as disability, health and ‘capability’, tend to be the key areas of consideration when it comes to vulnerable customers, the ongoing cost-of-living crisis has brought the issue of customer resilience as a vulnerability into sharp focus.

According to findings published last year by the FCA, low financial resilience caused by the cost-of-living crisis was one of the reasons why the number of people with a vulnerable characteristic had increase by nearly a million between May 2020-20222.

Around half of UK adults showed 1 or more characteristics of vulnerability according to these findings, up from previous surveys, with poor financial resilience showing the greatest increase. Almost a quarter of UK adults now show low financial resilience.

The rise in poor financial resilience is also leading to an increase in other potential vulnerabilities, particularly mental wellbeing. Separate research conducted by the FCA earlier this year found that over 1 in 2 UK adults are more anxious or stressed as a result of rising living costs3.

This highlights why it’s crucial that advisers are mindful of the broad spectrum of potential vulnerabilities to which a client may be subject. These are important considerations when determining whether good outcomes are being delivered and client needs met.

Engaging with vulnerable customers

If and when a client does become vulnerable, it’s important they are dealt with in a way that feels human and appropriate to their needs.

When discussing protection and health insurance with both vulnerable clients and clients more generally, there is a good chance an adviser will be talking about sensitive subjects, or their client will have been impacted by a major life change, especially at claim stage.

Kathryn Knowles, protection adviser and managing director of advice firm Cura says:

"Communication skills are important for all types of vulnerability. You need to be able to actively listen and hear what is being said, and more importantly what isn't being said. You need to be able to change your language, manner and approach to respond to how that person is communicating with you. You need to be empathetic, but make sure that you don’t accidentally become condescending or fall into a counsellor role.

“There is no easy answer: you have to train and you have to get experience at doing this. You also need to give yourself a break, you won't get things perfect every time – if your heart is in the right place, that is what the client will remember!"

It’s also important to state that care needs to be taken with all clients, because although someone may display a vulnerable characteristic that doesn’t automatically make them vulnerable. Conversations must be sensitive to this.

Consumer Duty – strengthening protections for vulnerable customers

In setting a much higher expectation of standards of conduct, Consumer Duty will strengthen protections not only for vulnerable customers, but all consumers in general.

Of the new regulations, the FCA states:

“Our rules require firms to consider the needs, characteristics and objectives of their customers – including those with characteristics of vulnerability – and how they behave, at every stage of the customer journey.”  

The rules will cut across everything from how information is communicated to customers, to the suitability of products to meet client needs.

As a product provider, Vitality has already put a lot of initiatives in motion, including updates to vulnerable customer policies, new accessibility standards and integration of systems to flag vulnerable customers across all areas of the business.

Advisers must also be mindful of the expectations placed on them and the need to have the right processes in place to identify and support vulnerable customers.

According to Johnny Timpson, Financial Inclusion Commissioner and member of the Financial Services Consumer Panel: "Identifying and supporting clients in times of vulnerability means having a clear policy, an empathetic culture and a focus on building the right knowledge, skills and professional development.”

He goes on to add:

“You need to understand the different types of potential vulnerability and ask yourself about the circumstances that could move a client from being potentially to actually vulnerable - be this vulnerability temporary or permanent. Observation, listening and open questions are key - it’s important that you don’t assume that client will disclose a vulnerability, particularly as they may have more than one, with these being compounding. There are various useful tools and drills – such as BRUCE and TEXAS - to help improve your conversations."

A version of this article originally appeared in Moving with the times: Getting more from protection conversations via Cover.

Working towards better client outcomes is good for everybody – this includes you and your business.
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Where to next?

  • Unpacking Consumer Duty: What is fair value?

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  • Unpacking Consumer Duty: What do 'good client outcomes' look like?

    At the heart of the new Consumer Duty regulations is a new consumer principle requiring firms to deliver ‘good’ client outcomes. Vitality Group Compliance Director, Steve Allibone weighs up what this might mean for advisers.

  • Unpacking Consumer Duty: Cross-cutting rules and how to avoid 'foreseeable harm'

    In the next instalment in our series, Vitality Group Compliance Director Steve Allibone investigates the impending ‘cross-cutting’ rules and what they might mean for financial advisers.

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