Supporting Vulnerable Customers: Old Problems, New Requirements for the Firm

When the FCA published its Vulnerable Customer Guidance in March 2021, who would have thought that just 12 short months later and as our economy was starting to recover from the impact of the Covid19 pandemic, we would witness the unfolding tragedy that is the war in Ukraine, the breadbasket of the world? This tragedy is additionally giving rise to the economic shocks of record high energy costs, increased living costs, higher inflation and interest rates that will impact all of us for some time to come, as well as increasing the scope and depth of customer financial vulnerability.

Sharp increase in Consumer Vulnerability in the UK coming…

This increased vulnerability is a worrying development: the latest from the FCA’s flagship Financial Lives research published in Feb 2021 (that supported the launch of the regulator’s Vulnerable Customer Guidance) flagged that at that time, 54% of UK consumers were displaying one or more of the characteristics of vulnerability and therefore at greater risk of harm. You can read the Report pdf here.  This FCA vulnerability research is currently being refreshed and we should anticipate and plan for the number of vulnerable consumers with support needs in the UK to have increased sharply.

Central to the FCA’s Vulnerable Customer Guidance is:

• the need to be inclusive by design
• take lived experience into account

These regulatory asks will take on increased significance with the introduction of the New Consumer Duty with its overarching principle of firms acting to deliver good outcomes for retail customers, this supported by three cross-cutting rules and four outcomes.

‘Consumer Duty’ goes international…

The regulatory requirement to support vulnerable customers is now international. I can personally attest to this having at the request of the Foreign Office and FCA recently presented on customer vulnerability to the Financial Supervisory Commission in Taiwan. It’s noteworthy that the current BSI vulnerable customer service standard BS18477 is being built on and due to be replaced In April by a new international standard ISO22458 — “Consumer Vulnerability Requirements And Guidelines For The Delivery Of Inclusive Service”.

This new ISO standard will introduce us to a new definition of vulnerable customer:

State in which an individual can be placed at risk of harm during their interaction with a service provider due to the presence of personal, situational and market factors

And with the new Consumer Duty (I predict) further raising the bar on vulnerable customer awareness, service, support, and outcomes here in the UK, I suggest firms and senior managers engage with the new ISO22458, as it will provide guidance on;

1. Implementing an inclusive service, audit process and gap identification whilst prioritising privacy and security
2. Inclusion by design and the importance of Lived Experience input
3. Understanding vulnerability risk factors and recognising signs and triggers.
4. Providing tailored support and response options that will improve outcomes for vulnerable clients.
5. Continuous improvement

It’s important to note that treating customers fairly, being inclusive and delivering good outcomes, does not mean treating all customers in exactly the same way. Indeed, knowing when a customer needs a specialist firm, agency and/or charity, and to embed appropriate signposting is crucial. I support and endorse BIBA’s 2022 Manifesto call for “total signposting” where you are unable to meet your clients need.

Signposting – When, Where, How…

Financial services colleagues and firms have a duty to act in their customers’ best interest, this is particularly important where the client is vulnerable or potentially so, in certain circumstances, this can and does result in a need to signpost to specialist advisers, brokers, support services, charities and/ or consumer groups. In terms of doing this, the adviser should first assess their clients’ needs and signpost when and where appropriate.

(1) When to signpost

Circumstances where it would be appropriate to signpost to a specialist adviser, broker, support service or Charity can include:

• The service required is not, or cannot be, provided by the adviser as it is beyond their authorisation and/or their and their firm’s risk appetite or area of experience.
• The service required is specialist legal advice on a specific subject or area of law that the adviser cannot provide.
• The adviser cannot deal with the case due to their workload or personal circumstances.
• The case needs urgent action that the adviser cannot provide.
• The financial services colleague thinks there could be a conflict of interest if they take on the case.

(2) Signposting: best practice suggestions

• Agree a company policy on referring and/or signposting clients to third parties, such as financial advisers, insurance brokers, specialist support services, charities and consumer groups
• Set up a clear referral and/or signposting options and process for referring clients to selected partners and carry out due diligence on them.
• Be consistent in offering help and record outcomes.
• Ensure clients can access services on their own terms and provide additional support if needed.
• Empower customer facing staff to refer and/or signpost where needed.
• Build relationships with the organisations that are being referred and/or signposted to and learn from each other.

A new development from within Insurance is the Financial Vulnerability Taskforce (FVT), a newly-created, independent professional body covering the Personal Finance, Insurance, and wider Financial Services Sector. Its ultimate purpose is to promote greater understanding, encourage appropriate behaviours and establish good practice in respect of consumer vulnerability. See https://www.fvtaskforce.com/. Adoption of the FVT’s new Charter presents firms and individuals with an independent set of standards that are equally in line with the expectations and rules of the Financial Conduct Authority. It enables adopters to promote their own processes and commitment to treating customers and clients fairly.

Final Thoughts

• Don’t delay, start preparing for both the new consumer duty and a significant increase in customer vulnerability today.
• Be inclusive by design plus seek customer lived experience input and feedback.
• Do not focus on the new consumer duty in isolation but be mindful of its interaction with fair value, customer vulnerability, the Equality Act and SMCR.
• Embrace the new vulnerable customer ISO standard.
• Use platforms such as GreenKite to share issues, solutions, and best practice.