Last month we looked at CP21/36 and the FCA proposals for a new Consumer Duty.
The far-reaching expectations under the Consumer Duty do not just build on an advisory firm having a culture in tune with SMCR, but also assume that a robust approach to deal with vulnerable clients has already been established and is being followed.
‘Vulnerable’ is mentioned more than 30 times in the latest Consumer Duty paper, strengthening the message that FCA expectations haven’t changed in relation to this area and once again throwing a spotlight on the importance of vulnerability as a keystone of Consumer Duty.
So before tackling Consumer Duty, firms would be well advised to ensure that all staff within the practice who fall under the code of conduct rules already have a sure foot when it comes to dealing with a client who might be classed as vulnerable.
It’s not going to be enough to evidence that training records on the issue of vulnerability are up-to-date. Similar to the FCA expectations on the code of conduct rules, firms need to be able to evidence that staff don’t just know what the rules are - it’s much more about how the different team members within a firm go about putting them into practice when conducting their duties.
In respect of vulnerable clients, it’s how each member of staff acts, putting their firm’s procedures and practices into place when dealing with a client identified as being vulnerable.
Any member of staff at any time during the advice process could become aware that a new or existing client might be vulnerable.
- A client responds to your website which mentions that the firm can offer retirement planning, first-time mortgage advice or clear and easy-to-understand advice, which resonates with them at this time to meet their needs.
- A client may mention, when arranging a first appointment, that they have money to invest from redundancy, from an inheritance, from an industrial accident, as a result of a relationship breakdown or that they are a ‘novice’ or ‘new investor’
- It’s probably (wrongly) considered that vulnerability is most likely to be identified when completing a fact find (details of medication, state of heath etc.) but do remember that some clients will not always easily volunteer that, or similarly personal information, and this could be a sign of vulnerability. It’s up to all staff to gently probe to see if the client is masking vulnerability and to take appropriate steps. Remember, the FCA wants all staff to look out for signs such as “I don’t understand”, “I am struggling to pay” and clients could make these comments on emails, on telephone calls or over internet-based meetings – they don’t have to be sitting down answering fact find questions from an adviser.
- Clients may reveal health details when completing an application form and, perhaps then, a firm could for the first time recognise that the client may be vulnerable.
- When advice is presented, a firm can often, by carefully watching a client’s reactions (If the client is staying quiet, not asking questions, or even scratching their head in bewilderment), uncover evidence that the client is vulnerable.
For existing clients, it’s often commented that advisers who see their clients regularly, perhaps annually, are in a unique position to notice any changes within a person, perhaps more so than someone who sees that client all the time and doesn’t notice subtle small changes over time.
Dealing with vulnerability
Having recognised that a client may be vulnerable, the key to meeting Consumer Duty expectations is to have flexible procedures to help a client with their particular needs.
These might include:
- Encouraging older clients to be accompanied by a trusted second point of contact such as a family member, carer or professional such as a solicitor or accountant.
- Engaging with the client on what is going to best suit their needs, perhaps allowing more time between interviews, more breaks during these meetings, or providing written supporting material ahead of any meetings.
- Offering appointments in whatever surroundings is most likely to suit a client.
- Providing different methods of communication, the most obvious being larger sized print, audio options or braille.
Training staff on the matter of vulnerability is already a core element of the Paradigm CPD & Sales Academy. Paradigm’s series of ‘Essential Skills Workshops’ in 2022, where a back-to-basic approach is taken in relation to important keystones of compliance, will also feature vulnerability later this year.
In relation to the proposed Consumer Duty requirements, where firms will need MI to evidence that the firm is delivering good outcomes, firms will also need to be able to evidence that they are reviewing the effectiveness of their vulnerable client procedures.
- Asking clients who have been identified as vulnerable about what the firm could have done differently, is a great starting point.
- Looking to see how clients have been identified as vulnerable will also greatly help a firm to review potential future sources of vulnerability and put all staff on alert
- Appointing a vulnerable ‘champion’ is a simple and effective way to help a firm co-ordinate, review and develop their approach.
While everyone digests the Consumer Duty initiative from the FCA, it’s worth remembering that this only builds on what should already be established and embedded processes.
Firms who review their activities on a ‘where we are now’ basis will be best placed to adapt their advice process further to meet the FCA’s expectations under Consumer Duty.