Support for clients in vulnerable circumstances is woven into the Consumer Duty and there are numerous references to it in the final guidance notes. But the FCA stopped short of focusing on vulnerability in its own right as one of the specified outcomes or cross-cutting rules.
Since hearing Nick Hulme, the FCA’s head of department for advisers, wealth and pensions, describe vulnerability as the lens through which the regulator is assessing firms’ implementation of the Consumer Duty, some commentators believe the FCA is adopting a tougher stance on the issue.
This impression has been reinforced by Hulme’s comments questioning how firms can properly define their target markets and segment their clients if they are unable to correctly identify those in vulnerable circumstances.
So, do advice firms need to step up their efforts around vulnerability?
A big shift
To say vulnerability is the lens through which the FCA is looking at firms’ overall implementation of the duty is a big shift, according to Jonathan Barrett, chief executive and co-founder of clinical technology provider Comentis.
Barrett believes the regulator’s “hardening of stance” is inevitable, since it is perhaps realising that it should have been more explicit about vulnerability in the Duty at the outset.
Vulnerabilities are nuanced. Different people will react to different vulnerable circumstances in different ways
“They should have made it a cross-cutting rule because it goes across pricing, it goes across understanding, it goes across all of those pillars,” he says. “It would then have been taken more seriously and more explicit as a requirement.”
Firms already feel they are doing a good job and Barrett acknowledges they have made lots of progress.
“They’ve done lots of training, they’ve got policies in place, they’ve got procedures, they’ve got vulnerability workshops – there are some good intentions there,” he says. “But one thing we’ve always noticed is that if you get the identification wrong, everything else that follows it is not going to be quite right.”
As there is not a vulnerability pillar or vulnerability cross-cutting rule within the Consumer Duty, Barrett thinks firms realise it is important but almost don’t see the rigour that they need for it. Comentis often hears from advisers who say they know who their vulnerable clients are.
“In reality, they will probably know an average of one in four of their vulnerable clients – and we’ve got data to back that up,” says Barrett. “So there is still a really big gap and I think that’s probably one of the FCA’s concerns, because they did say identification rates are not where they want them to be.”
Understanding the nuances
Given that advisers are working to the FCA’s definition of vulnerability, which is extremely broad, they may be tempted to go the other way and regard all their clients as vulnerable in some way.
“But that doesn’t help either. It’s about understanding the nuances and this is where it leads into what Nick Hulme was saying about segmentation,” says Barrett. “Saying every one of my clients is vulnerable is not a segmentation.”
Cover story: Hidden vulnerabilities: How should advisers approach them?
Although firms making their services more inclusive and more open is a great thing to do, Barret says this misses the point.
“The point is that vulnerabilities are nuanced – different people will react to different vulnerable circumstances in different ways,” he says. “So you’ve got to be more granular in terms of your segmentation.”
To do this, firms need a complete data set. “You cannot form a segmentation if you’ve only got half the information. Saying ‘we’re going to segment our clients based on who we think are vulnerable and by default the rest of them probably aren’t’ doesn’t work,” says Barrett. “It’s about how do you check every single client systematically.”
However, vulnerability can be a bit of an awkward topic for advisers. “Where we have seen that struggle is with identification because they’re saying that they’re not medical practitioners or social workers or psychologists,” says Barrett.
While at training or other events, advisers will often come up to Barrett and say ‘well I’m not a counsellor, I’m not a social worker – this isn’t my area of expertise’. “No, it’s not – an adviser shouldn’t be those things,” says Barrett. “They spin enough plates as it is.”
By putting everyone through an assessment or check – whether that is from Comentis or another provider – Barrett says advisers will have a better understanding of who is vulnerable and who is not, which will help with segmentation.
Making a difference
When it comes to providing support to those in need, advisers can tap into services provided by other organisations such as the emotional support charity Samaritans.
Samaritans is well known for providing confidential, non-judgmental help to anyone struggling to cope with anything from financial worries to relationship problems, and those experiencing suicidal thoughts.
When it comes to providing support to those in need, advisers can tap into services provided by other organisations
Not only can advisers signpost clients to Samaritans for support 24 hours a day, seven days a week, they can also make use of its Training and Engagement Programmes (STEP) for businesses.
STEP helps companies and organisations with identifying and supporting people who are struggling to cope, using the same ‘active listening’ techniques used for training its volunteers.
It came about because frontline workers in all kinds of businesses were coming across people in potentially vulnerable circumstances and did not know how to deal with them. In some cases, this was taking a toll on those workers’ mental health.
Although Samaritans training has not been developed to meet the FCA’s requirements around vulnerability, firms may find it useful for admin and support staff who are often the first point of contact for clients.
“Our training is all about supporting people who might be vulnerable with training that’s based upon Samaritans’ active listening services and also providing staff members with the opportunity to become a bit more resilient themselves,” says Jason Jaspal, assistant director of business development at Samaritans.
“There are cases where people have been through our training, interacted with someone who had suicidal thoughts and that training has saved that person’s life. It can make a real difference.”
