A guide to understanding & supporting vulnerable customers

We understand that navigating the financial landscape can be a complex process for everyone. However, certain individuals may face even greater challenges due to their personal circumstances. The Financial Conduct Authority (FCA) defines a vulnerable customer as someone who, due to their situation, is "especially susceptible to harm, particularly when a firm is not acting with appropriate levels of care."

Joe French, Managing Director at Newgate Compliance (a subsidiary of Ocorian), and Sam Mugridge, Senior Compliance Consultant – Newgate Compliance, have put together a guide which explores the key aspects of vulnerability and offers practical steps to ensure these customers are treated fairly.

The spectrum of vulnerability

Vulnerability is not a binary state; it exists on a spectrum. The FCA identifies four key drivers that can increase a client's vulnerability:

1. Health: Physical or mental health conditions can impact a person's ability to manage their finances.
2. Life events: Experiences like bereavement or sudden caring responsibilities can create emotional and financial strain.
3. Resilience: A client's ability to cope with financial shocks or unexpected situations varies.
4. Capability: Limited financial literacy or numeracy skills can make financial decision-making more challenging.

The Impact of COVID-19

The COVID-19 pandemic significantly impacted vulnerability levels. While the number was previously declining, it rose amongst specific demographics, including younger adults, employed individuals, and BAME communities.

Taking action: practical steps for firms

The FCA has outlined expectations for firms to ensure fair treatment of vulnerable customers. Here are some key areas for consideration:

• Embed consideration of vulnerable customers into your firm’s culture: Integrate fair treatment principles throughout the customer journey, from onboarding to ongoing service.
• Staff training & support: Equip staff with the skills to recognise vulnerability and respond effectively. Offer support to staff dealing with vulnerable clients.
• Product & service design: Consider how products and services cater to the evolving needs of vulnerable customers.
• Customer service: Create systems that allow vulnerable customers to disclose their needs and access relevant support options.
• Communication: Ensure all communications are clear and understandable for all customers.

Vulnerable customers & the connection to consumer duty

The FCA's Consumer Duty emphasises the importance of considering vulnerable customers across the lifecycle of products. Firms are expected to proactively identify outcomes for different customer groups, including vulnerable ones. Data about outcomes should inform the manufacturing process and enable firms to design products with features that cater to vulnerable customers’ needs.

Identifying vulnerable customers

The FCA guidance provides a framework for identifying vulnerability. Here are some steps to consider:

• Report any suspicions of vulnerability to the designated staff member.
• Focus on the drivers of vulnerability and potential harms rather than directly labelling a customer as vulnerable.
• Utilise the record-keeping functionality within your client onboarding system.

Conclusion

Understanding vulnerability is key to building strong and trusting client relationships. By following these guidelines and fostering a culture of care, firms can ensure all customers, regardless of their circumstances, receive fair and supportive treatment.

How can Newgate Compliance help?

Understanding vulnerability is key to building strong and trusting client relationships. By following these guidelines and fostering a culture of care, firms can ensure all customers, regardless of their circumstances, receive fair and supportive treatment.

At Newgate Compliance (an Ocorian subsidiary), we provide a comprehensive Consumer Duty toolkit which includes a vulnerable customers training package delivered to client-facing staff. The toolkit ensures your staff are equipped to interact with consumers who may have characteristics of vulnerability.

Contact the team today to find out more.