The consumer duty emphasises that firms must act to deliver good outcomes for all retail customers, especially those in vulnerable circumstances or who are more susceptible to experiencing periods of adversity that impact their finances and their financial decisions.
The Financial Conduct Authority expects that action taken and improvements made by firms as a result of the consumer duty will particularly benefit those with characteristics of vulnerability.
Consideration of clients' vulnerability characteristics has become particularly important since the pandemic and the current cost of living crisis.
Clients affected by external events and personal trials may require a different level of care to others, and their reactions are influenced by their individual abilities to bounce back from difficulties and stay in control of their finances.
The FCA published their guidance on the fair treatment of vulnerable customers in February 2021, which clearly states that advisers will need to assess their clients against four key drivers of vulnerability: health, life events, resilience, and capability.
It is then the responsibility of firms to ensure that their interactions and forms of communication with clients are appropriate, taking into account their vulnerable circumstances.
Firms must monitor and review their management information, which may include customer feedback, complaints, and behavioural insights, in order to understand potential harms.
They should develop procedures to capture clients' needs, such as their communication requirements and their characteristics of vulnerability.
In order to ensure vulnerable customers are treated fairly, firms must take positive action and implement strategies to support their staff.
It is also important that senior leaders create the right culture, allowing strategies to be developed for supporting vulnerable clients and providing opportunities for training staff where the effectiveness of training can be evaluated.
What is vulnerability?
Vulnerability is the susceptibility to experience harm due to personal circumstances, particularly when a business is not acting with appropriate levels of care.
Vulnerable clients have a greater likelihood of experiencing a state of distress and be at risk of falling into hardship (that is, unable to maintain their standard of living) rather than a situation of living in a certain state of poverty or need. This means that anyone, regardless of wealth or income, can be vulnerable.
All clients are at risk of becoming vulnerable and the severity of risk can differ, but this risk is increased by having characteristics of vulnerability that can relate to the four drivers outlined by the FCA in the table below.
Although it is unrealistic for firms to explore all areas of potential vulnerability and identify every client with characteristics of vulnerability, as part of the consumer duty, firms are expected to encourage clients to share information about their needs and circumstances, and staff should be supported to identify signs of vulnerability by receiving training, resources and access to systems and processes that allow clients to disclose their needs.
Characteristics associated with the four drivers of vulnerability
| Health | Life events | Resilience | Capability |
|---|---|---|---|
| Physical disability | Retirement | Inadequate or erratic income | Low knowledge or confidence in managing finances |
| Severe or long-term illness | Bereavement | Over-indebtedness | Poor literacy or numeracy skills |
| Hearing or visual impairment | Income shock | Low savings | Poor English language skills |
| Mental health condition or disability | Relationship breakdown | Low emotional resilience | Poor or non-existent digital skills |
| Addiction | Domestic abuse (including economic control) | Learning difficulties | |
| Low mental capacity or cognitive disability | Caring responsibilities | No or low access to help or support | |
| Other circumstances that affect people's experience of financial services, eg leaving care, migration or seeking asylum, human trafficking or modern slavery, or convictions |
Assess vulnerability from a subjective perspective
The majority of vulnerability characteristics presented in the table above can be captured through a questionnaire or even through open finance with the help of technology.
