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What’s best practice when advising vulnerable clients?

17 November 2019

The FCA focus on vulnerable customers looks to embed doing the right thing into the culture of firms, says Geoff Buck, associate director, DP Pensions.

A vulnerable customer is defined by the Financial Conduct Authority (FCA) as ‘someone who, due to their personal circumstances, is especially susceptible to detriment, particularly when a firm is not acting with appropriate levels of care’.

Vulnerability can derive from a number of factors including health; life events such as bereavement or relationship breakdown; resilience and personal capability in relation to financial matters. With this in mind, it is understandable why the FCA’s most recent Financial Lives Survey showed that 50% of UK adults display one or more characteristics of being potentially vulnerable.

Protection of these vulnerable customers currently sits at the top of the FCA’s agenda. On 23 July 2019, the FCA issued a consultation on the draft Guidance for firms on the fair treatment of vulnerable clients inviting feedback about the activities, policies and processes firms currently have in place to treat vulnerable customers fairly.

With the first stage of the FCA’s two-stage approach to consulting now complete, the industry patiently awaits the revised Guidance and accompanying cost-benefit analysis in light of industry feedback.

The FCA’s wide definition of vulnerable customers recognises the varied drivers of vulnerability and that it can often be transient.

The impact of vulnerability can be detrimental to customers who might find themselves exposed to a scam or mis-selling, perhaps the more sinister consequences of being vulnerable.

Yet, it is often overlooked that a vulnerable individual’s inability to manage or purchase appropriate products can result in equally significant harm.

The FCA wants to see firms use and apply the Guidance as an aid to how they comply with the Principles for Businesses (The Principles) in their treatment of vulnerable customers. The idea is that it is not set out to be prescriptive. From this we can assume that there will be no set processes put in place, but that firms should take this responsibility themselves.

Firms will need to take a sensible approach in determining what the Guidance means for them which will vary significantly for different firms.

The Guidance aims to see that doing the right thing for vulnerable customers is embedded into the culture of firms, with the idea that firms should be more focussed on ensuring the outcomes experienced by vulnerable customers are at least as good as those of other consumers. The FCA believes that this will be done best where there is commitment from the top of the firm to:

  • use their judgement about how they should treat their vulnerable customers fairly;
  • develop an understanding of the needs of vulnerable customers and translate this into practical action in a proportionate way;
  • ensure that staff have the necessary skills and capability to meet their needs;
  • take a proactive approach towards understanding the nature and extent of vulnerability in their target market and consumer base; and
  • consider how to improve their processes and systems to help staff record and share information on vulnerable customers’ needs.

Firms may find that the Guidance is a useful tool in helping them to consider whether their existing practices are sufficient and where gaps exist in their current approaches.

As an industry we must work together with the FCA to develop best practice but also to create consistency across financial services. Whilst the industry awaits the further guidance with interest, firms should be encouraged to attend events and forums where best practice ideas are being discussed.

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