The FCA has said protecting vulnerable consumers is one of its key priorities.
Last month the regulator published a guidance consultation for firms who provide products and services to those consumers who are actually, or are potentially, vulnerable.
The FCA's main findings were that:
- It is hard for firms to identify which consumers are vulnerable
- Individuals are unable to disclose a vulnerability, or don't understand why or how to disclose that they are vulnerable
- Firms labelling customers or clients as vulnerable can be upsetting or even offensive
- Firms aren't doing enough to ensure vulnerable customers are identified or are accommodated by their products and services
- The wider industry takes an inconsistent approach to this issue, so vulnerable customers are not being treated the same across the board.
The FCA's Financial Lives survey in 2017 put the number of potentially vulnerable UK adults at 25.6 million – that’s 50 per cent of all UK adults.
Most firms we talk to usually identify nowhere near this number of potentially vulnerable clients. So what is different between the way we as a profession identity them and the way in which the FCA is now classifying them?
Who are vulnerable customers?
Usually vulnerability is identified as those who have a physical disability or impairments, a severe or long-term illness or those suffering from poor mental health.
The regulator has now classified these into four key drivers of vulnerability:
The high number of potentially vulnerable people stems partly from the fact that as a population our average age is increasing, with a lower birth rate and longer life spans.
This means the potential for a consumer to become vulnerable has also increased. This has an impact on the way clients engage with products such as pensions and mortgages.
With an ageing population, we are seeing an increasing need for a pension income over a longer period.
While people living longer is no bad thing, as we get older we are more susceptible to problems with memory and understanding. We are also more likely to need care in one form or another and, unfortunately, are more likely to fall victim to a scam.
In terms of mortgages, despite a raft of housing schemes at a government and local level, young people and first-time buyers are still struggling to save for deposits.
Those with mortgages already can also be vulnerable, as seen with those classed as 'mortgage prisoners' left in negative equity and unable to move following the financial crisis.
Meeting the needs of vulnerable clients
You need to understand the needs of your vulnerable clients and ensure your staff are trained to meet those needs.
Vulnerable clients should also be considered throughout the client journey, whether this is at the enquiry stage, in your marketing, when implementing recommendations and if they decide to stop using your services.
The FCA has set this out in the useful infographic below:
Through this consultation, the FCA hopes to understand:
- The impact amending its approach to vulnerable customers will have on firms' costs and the benefits these changes will deliver for vulnerable clients; and
- The level of guidance firms want and need.
The consultation closes on 4 October. The regulator will then consider the feedback before publishing a policy statement towards the end of the year.