Consumer Duty and client vulnerability

5 min read 19 Jul 23

By now you’ll have done all the hard yards on the consumer duty – the planning, fair value assessments, you name it - and are comfortable that you’re ready for the Consumer Duty regulation. But one particular subject we haven’t yet covered in detail as part of our Consumer Duty series is client vulnerability. And it definitely warrants some close attention.

Client vulnerability

References to client vulnerability appear throughout the consumer duty with perhaps the most important example being when the FCA highlights that it wants “firms to consider characteristics of vulnerability because these are key drivers of harm in financial service markets.” [1]

Given that one of the core objectives of the duty is to protect consumers from foreseeable  harm, then it’s absolutely worth doing a refresher on the FCA’s earlier guidance on client vulnerability - FG21/1 ‘Guidance for firms on the fair treatment of vulnerable customers’  - especially as this is a substantial document in itself.

Originally published in 2021, the document covers four key areas. Handily, these should give you a good structure to follow when considering client vulnerability in the context of the consumer duty:

  1. Understanding the needs of vulnerable customers
  2. Skills and capability of staff
  3. Taking practical actions
  4. Monitoring and evaluation

Let’s look at each of these in more detail and pull out the key points.

1. Understanding the needs of vulnerable customers

The FCA wants firms to understand the nature and scale of characteristics of vulnerability within their target market, as well as the impact these will have on the needs of their customers. This requires a wider awareness of the many situations and circumstances that may put customers in a vulnerable situation. And remember that the FCA highlights in both the consumer duty and this guidance that all customers are at risk of becoming vulnerable.

Suddenly, the task can seem completely vast. Helpfully, the FCA narrows it down somewhat by encouraging us to think about vulnerability as a spectrum of risk, whereby all customers are at risk of becoming vulnerable but this risk increases as a result of 4 key drivers:

Health – health conditions or illnesses that affect the ability to carry out day-to-day tasks.

Life events – life events such as bereavement, job loss or relationship breakdown.

Resilience – low ability to withstand financial or emotional shocks.

Capability – low knowledge of financial matters or low confidence in managing money. This can include digital skills or literacy.

The situations and characteristics that make someone vulnerable can be complex and overlapping, with people also becoming more or less vulnerable over time. And equally, just because a client has characteristics of vulnerability, it doesn’t necessarily mean that they are vulnerable. But it does increase the likelihood that they’ll have additional or different needs.  

For customers identified in the target market as being at the greatest risk of harm, then additional care should be taken to ensure their needs are met. But the FCA also wants firms to act early to prevent risk of harm developing in the first place, by ensuring products and services are designed to recognise and respond to the needs of vulnerable customers.

Bringing it to life

It’s helpful to look at an example of some of the behavioural and personal consequences created by vulnerability, especially those that may be less obvious. For example, a vulnerable customer may struggle with a lack of perspective especially when seeing something for the first time. They may not fully understand the broader implications and find it hard to make comparisons or be able to see the big picture.

This type of behaviour may be particularly relevant in situations involving an emotional shock such as bereavement or long-term/terminal illness.

2. Skills and capability of staff

Meeting the needs of vulnerable customers should go beyond frontline staff, with the FCA expecting firms to embed this understanding right across their teams, from senior management through to relevant back-office employees.

Those on the frontline should be given the support and training to spot the characteristics of vulnerability and respond accordingly. Working with vulnerable customers can be tough on frontline staff too, so emotional and practical help should also be made available to them.  

Bringing it to life

Employees involved in product and service design or transformation programmes should have sufficient understanding of the needs of vulnerable customers in a firm’s target market and take these into account as part of the design process or transformation agenda.

External training and support is available to help build staff skills and understanding of client vulnerability, via charities and initiatives such as the Alzheimer Society’s Dementia Friend or the UK Finance 2021 Financial Abuse Code.

3. Taking practical action

This is the point where the FCA wants firms to take all the understanding they’ve gained about vulnerable customers in their target market and adapt products and services, customer service and communications to meet these needs.

A good place to start is by looking at the potential positive and negative impacts that a product or service could have on vulnerable customers, especially as some of these may be unintentional. And when it comes to designing products and services, the needs of vulnerable customers should be built into every stage, from idea generation through to launch.

Systems and processes around customer services should also respond flexibly and proactively to the needs of vulnerable customers. This includes enabling vulnerable customers to disclose their needs and letting them know about additional help available, such as specialist support services. For digital tools or channels, chatbots or text boxes can encourage consumers to share information about their needs.

All communications and information about products and services should be available in formats that can be easily understood by vulnerable customers. If a customer’s vulnerability can affect their comprehension, a firm should take time to proactively check that they’re able to understand the available information about a product or service.

4. Monitoring and evaluation

The last but by no means least important part of the puzzle is to monitor the steps you’ve taken around client vulnerability, either on an ongoing basis or through regular reviews. Management information should be utilised to evidence the outcomes being delivered for vulnerable customers.

And processes should be put in place to evaluate where your firm may not have met the needs of vulnerable clients, and identify necessary improvements to be made.

The FCA outlines key areas that can be considered as part of the monitoring process:

Decision making: are products/services meeting the needs of customers when providing information and support to make decisions?

Engagement throughout the customer journey: are customer service and communications meeting the needs of vulnerable customers? Are customers experiencing difficulties effectively engaging with firms throughout the customer journey?

Disclosing changes in circumstance/needs: are vulnerable customers supported and encouraged to share information about their circumstances or their needs?

Suitable products: are customers able to access products/product features that are suitable and that meet their (changing) needs?

Back to the consumer duty

Since publishing its original guidance on client vulnerability, the FCA has issued an update highlighting that the cost of living crisis will likely push more consumers into vulnerable circumstances.

And given the repeated references made to vulnerable customers throughout the consumer duty, this is going to be right up there on the FCA’s agenda for the foreseeable future.

So taking this altogether, your approach to client vulnerability needs to be fully embedded in your firm going forward and what was previously guidance should now arguably be viewed as hard and fast rules.

[1] Source: PS22/9 A New Consumer Duty, Financial Conduct Authority 

Key client takeaways

  • Consider both the characteristics of vulnerability within your target market e.g. bereavement and long-term illness, and also think about the impact these vulnerabilities will have on the needs and behaviours of your clients.
  • Work on the basis that all clients can become vulnerable, and that they can be more or less vulnerable over time. Vulnerabilities can also be complex and overlapping.
  • As well as offering appropriate support for customers at the greatest risk of vulnerability, you should be ready to act early to prevent risk of harm happening to clients in the first place. This is done by ensuring your products and services can recognise and respond to signs of vulnerability.