Ensuring processes are in place to help identify and manage vulnerable clients will keep everyone safe, including firms
The subject of vulnerable clients is attracting increasing interest, and rightly so. Life is never straightforward and this means clients can become vulnerable at different times. That said, a client’s vulnerability is not always easy to spot. There is not a typical “vulnerable” person and people who others see as such might not view themselves in that way. So what is meant by vulnerable?
The FCA’s definition is someone who, due to their personal circumstances, is especially susceptible to detriment, particularly when a firm is not acting with appropriate care.
Vulnerable clients are significantly less able to engage with the financial services industry and, if anything went wrong, would suffer disproportionately. The cause of vulnerability falls into one of the following four categories:
- Health (both mental and physical);
- Financial resilience;
- Life events (such as bereavement or loss of income);
- Capability (i.e. financial knowledge/confidence).
There are millions of vulnerable people in the UK. Indeed, the FCA has stated that as many as half of consumers could potentially be vulnerable. This is backed up by statistics, including the following:
- There are 850,000 people with dementia in the UK, with numbers set to rise to over a million by 2025, increasing to two million by 2051;
- Some 16 per cent of working adults have a disability;
- One in seven adults has the literacy skills of a child aged 11 or below;
- Just under half of adults have a numeracy attainment age of 11 or below;
- Almost half of adults do not have enough savings to cover an unexpected bill of £300 or more;
- One in four adults suffers from a mental illness.
The Financial Ombudsman Service states it often finds firms have not realised the extent of their clients’ vulnerability. So are you doing enough to identify and support vulnerable clients?
What are the FCA’s expectations?
The main expectations noted by the FCA are around:
- The need to have appropriate policies in place;
- The need to train staff, especially frontline staff;
- Client communications being inclusive.
In the FCA’s mission paper, Our Future Approach to Consumers, it says it expects firms to:
- Exercise extra care when clients may be vulnerable;
- Ensure all clients are included;
- Understand the needs and potential risk factors of clients;
- Pay attention to possible indicators of vulnerability;
- Have policies in place to deal with clients at greater risk of harm;
- Identify clients who may be at risk of financial exploitation.
What are the FCA’s concerns?
The main concerns are as follows:
- Firms lack an overarching strategy or policy on client vulnerability;
- Policies designed to prevent financial abuse can inhibit staff empowerment to use discretion, particularly regarding legitimate access by third parties;
- Failure of internal systems to communicate and connect information internally;
- Channels of communication that are not inclusive;
- Policies/practices not being implemented;
- Arrangements around temporary delegation or accompaniment not being sufficiently developed;
- Staff not being sufficiently aware of/trained on their vulnerable client policy.
We can expect the FCA to continue to focus on the most vulnerable and least resilient groups.
What does good look like?
First, it is crucial for advice firms to exercise additional care when a client is or may be vulnerable.
Furthermore, it is not sufficient to simply rely on a vulnerable client policy to demonstrate support.
Firms need to go further than this, demonstrating the actions being taken to ensure the service delivered is as inclusive as possible.
As a guide, firms should ask themselves the following:
- Have we got appropriate policies in place and does everyone follow them?
- Are we as inclusive as possible, so clients always have a choice of communication options?
- Do we consider the impact of our decisions on vulnerable groups?
- Have we trained our frontline staff to recognise when clients are having difficulties, or to have sensitive conversations and to know when to refer people for more specialist help?
- Can we recognise the various areas of vulnerability and do we have the right indicators in place to detect them?
- Do we allow flexible timeframes to better meet client needs?
- Is the technology we are using helping to improve rather than hinder client interaction?
- Do we understand third-party access options – for example, lasting powers of attorney and third-party mandates – so we do not inhibit staff empowerment to use discretion, particularly regarding legitimate access by third parties?
Firms can expect to hear much more about this topic in the coming months and years.
Suzanne Grimster is head of risk assurance and governance at Bankhall