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With six months under our belts since the implementation of the FCA’s Consumer Duty, many firms have implemented processes that will adhere to the new regulations in relation to the identification and support of vulnerable customers.
And as encouraging as this might be, we've found through our work at Comentis that many are still struggling to think about vulnerability in a way that will enable them to provide adequate support. Specifically, many of those who come to us for help are misunderstanding the difference between a vulnerability and a vulnerable circumstance.To comply with Consumer Duty - and, of course, to properly support those who are at risk - this is something that urgently needs to be addressed.
What's the difference?
The difference between a vulnerability and a vulnerable circumstance is that a circumstance, such as divorce or redundancy, is a trigger - or, to use the Financial Conduct Authority's (FCA) terminology, a driver. A vulnerability is what someone might experience as a result of that trigger.
If we consider bereavement, for example, someone who loses a life partner or close family member is likely to suffer a significant emotional impact. It may affect their mood and consequently their ability to engage and concentrate. By comparison, if someone loses a distant family member, who they perhaps weren't particularly close to, the emotional impact may be less severe.We can see, therefore, how bereavement affects people differently, and how the vulnerability is not the bereavement itself but the emotional, mental and cognitive response. This link between circumstance and vulnerability is known as the causative nexus, and is something advisers need to understand if they hope to deliver on Consumer Duty.
Why do advisers struggle with this?
There are various reasons that might explain why advisers have trouble with this. One is that the triggers - or drivers - are often treated as the vulnerability itself. Drivers are also often seen as being fixed, meaning that the bereaved customer who has lost their life partner might be thought of as being just as vulnerable as the customer who has lost a distant relative. These early misconceptions give way to another issue; specifically, knowing how to provide support. We hear from plenty of advisers who have identified a vulnerable customer but don't know how to support them.
More often than not, this happens because they don't fully understand the impact of the vulnerability. For instance, if the impact is that a change in mood is causing poor engagement and poor concentration, an adviser could help that customer by conducting shorter meetings or by going to their home rather than calling them to the office. The problem of looking only at the trigger is further exacerbated by the fact that many advisers believe they're already operating as they will need to under Consumer Duty. They identify that someone is bereaved, they tick the relevant box and think that they're done. They don't appreciate that there are a number of other steps they still have to take.
In their defence, we can't expect a financial adviser who hasn't received the same training as a trained clinician to know what exactly to look for when they hear that someone is suffering with low mood. The question, therefore, is how to impart those clinical skills.
What can be done?
Now that Consumer Duty has come into effect, advisers need the means to identify a trigger, assess its impact on the customer and understand how to offer proper support.
Let’s not beat around the bush; to begin thinking like a clinician isn’t straightforward. The key to achieving it is that changes have to be reasonable; a solution is required that slots into a firm's existing client journey.Of course, there's training that can help with this. But to truly determine whether someone is vulnerable - even in cases when they might not realise it themselves - the reality is that every single customer has to undergo an assessment, regardless of whether that customer is new or has been known by the adviser for 20+ years.
Our financial vulnerability assessment exist manages this effortlessly, removing subjectivity from the process and ensuring consistency across all advisers. Indeed, there's a case to be made that these kinds of solution is the only way to guarantee all vulnerability drivers are in scope. By combining clinical expertise with hard data, it can provide reassurance that a firm will adequately meet the scrutiny of Consumer Duty.
The momentum is building, with the regulator having recently announced through its ‘regulatory initiatives grid' publication that it will be reviewing vulnerable customers outcomes in the first quarter of 2024, with a post-implementation report on treatment of vulnerable customers expected towards the end of the year.
So, if you have not already done so, now is the time to really knuckle down and get some robust processes in place.