In Focus: Vulnerability is more than just a tick-box exercise

I went to see a band called The National at the Eden Project with my sister, brother-in-law and their friend in the summer.

We’d booked standing tickets months before. Then my sister and brother-in-law found out they were expecting (very exciting), so my sister would be five months pregnant at the gig.

At around the same time, I found out I had narcolepsy (see my online Weekend Essay, 3 May 2024). It also so happened that the friend we went with had mild schizophrenia.

For all firms, large or small, the challenge is to try and relate things to each customer

I remember my brother-in-law telling me about the call he had to make to the Eden Project to get us into the accessible area: “Er, yes, my wife is heavily pregnant, my sister-in-law has narcolepsy and my friend has schizophrenia…. Can we have seats, please?”

I bet they were looking forward to our arrival.

I tell this anecdote because it highlights how quickly vulnerabilities can present themselves. We had booked our tickets in April and, just three months later, my sister and I both needed accessible seating.

It also highlights the extent to which vulnerabilities such as disability can be invisible.

Recognition

It’s easy, when one hears the word ‘vulnerability’, to say, ‘That’s not me.’ My dad has asthma, Type 2 diabetes and high blood pressure, but he still insisted he should take his turn to make a trip to the supermarket during the Covid-19 lockdowns.

This is just one of many issues advisers face when identifying vulnerability in their client base.

We encounter many situations when a client might need support but there isn’t a PoA in place

The Financial Conduct Authority’s definition of vulnerability refers to customers who, due to their personal circumstances, are “especially susceptible to harm”, particularly when a firm is not acting with “appropriate levels of care”.

The regulator has also emphasised the fact people should be referred to as being “in vulnerable circumstances” rather than as “vulnerable clients”.

In its guidance it says: “Firms should think about vulnerability as a spectrum of risk. All customers are at risk of becoming vulnerable and this risk is increased by characteristics of vulnerability related to four key drivers: health, life events, resilience and capability.”

Even with this definition in mind, however, there are so many ways a person can display vulnerability. Plus, life events and health issues affect people in different ways.

There is a knowledge base and a gap that can be filled

“The problem with discussing vulnerability is that it’s quite difficult to define,” says Evelyn Partners head of investment management Chris Kenny.

“Rather than having a series of very clear benchmarks or KPIs [key performance indicators], the industry is trying to find its way, to some extent.”

And, he says, it is not just about defining vulnerability but also about recording and showing that you’re “doing the right thing”.

Struggling firms

Financial services firms of all sizes are “struggling” with several areas, adds Kenny.

“One is the issue of consent,” he says. “What is it that we can get, and how can we do it?”

For all firms, large or small, the challenge is to try and relate things to each individual customer

There is also the question of identification as it is very unlikely that clients will self-identify.

The FCA says that, to deliver good outcomes for vulnerable customers, firms should understand their needs and circumstances. Therefore, the regulator expects firms to “actively encourage” customers to share information about their needs or circumstances, where relevant.

It also expects firms to develop their own method of identifying vulnerability where appropriate, through the data they hold or other means such as external research, customer surveys or panels.

And, as if that weren’t enough to contend with, vulnerability is not a permanent state.

“Advisers need to think: is there a period of time during which there’s a risk of vulnerability, as opposed to it being a state that a client is always in?” says Kenny.

“It could be during a divorce or a short-lived illness, for example.”

Regular and in-depth contact allows the advisers to assess when things are changing and evolving in an individual’s life

Then there is the matter of recording vulnerabilities.

“In our regulated industry, if something isn’t recorded it essentially doesn’t exist,” warns Kenny.

“And finally there’s the question of support — what should we be doing? This causes some concern for advice firms because, even if they manage to clear the first three hurdles, they wonder, ‘Am I doing the right thing?’”

The FCA is keen to get firms up to scratch on all of this. It is expected to make a speech on the matter later this month.

It flagged vulnerability as an issue at the beginning of the year when it launched a review of firms’ understanding of consumer needs, the skills and capability of staff, product and service design, communications and customer service, and whether these supported the fair treatment of customers in vulnerable circumstances.

The industry is trying to find its way, to some extent

This followed a Dear CEO letter to wealth managers and stockbrokers in November 2023 — telling them to reassess the vulnerability of their customers — after the regulator had found that 49% of portfolio managers and 69% of stockbrokers had not identified any vulnerable consumers in their customer bases.

FCA head of department in consumer investments Nick Hulme says: “Vulnerability spans all four of the Consumer Duty outcomes, so getting it right is fundamental to firms ensuring their customers ultimately get a good outcome.”

The Lang Cat consulting director Mike Barrett says: “For all firms, large or small, the challenge is to try and relate things to each individual customer.

“Having a blanket tick-box approach doesn’t achieve that. That’s the poor practice the regulator is trying to stamp out.”

Barrett suggests small firms naturally have more in-depth relationships with clients.

“Regular and in-depth contact allows the advisers to assess when things are changing and evolving in an individual’s life,” he says.

‘Firms should think about vulnerability as a spectrum of risk,’ says the FCA

But smaller firms may lack the capacity to recognise vulnerability.

Kenny says there is a lot more that larger firms and providers can do to help smaller advice-led businesses do “a great job for their clients”, above just trying to compete on price.

He says: “There is a knowledge base and a gap that can be filled.”

Royal London director of policy Jamie Jenkins agrees. He says the need to support vulnerable customers is, rightly, getting more attention, but vulnerability can be difficult to recognise and quantify.

“We work closely with advisers to help them identify situations that might indicate vulnerability, including offering regular webinars,” he says. “We also provide pension and protection insights through our business development managers network.”

Jenkins suggests that advisers can help by putting a power of attorney (PoA) in place with clients “sooner rather than later”.

The problem with discussing vulnerability is it’s quite difficult to define

He adds: “This will really help them to help their clients navigate their finances when they aren’t able to do so themselves.

“We encounter many situations when a client might need support but there isn’t a PoA in place and there is no authority to deal with the third party trying to manage their finances on their behalf.”

Finding the answer

There is no easy answer to identifying and serving clients in vulnerable circumstances. But it is, arguably, one of the most important things a financial planner can do.

After all, if you cannot serve the most vulnerable in society, how can you expect to be trusted by anyone else?

This article featured in the October 2024 edition of Money Marketing. 

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