‘Ensuring the fair treatment of customers in vulnerable circumstances’ has been the latest mission statement of the FCA since talks first began about revising the industry’s standards towards care and duty. As we are all now well aware, these discussions would eventually give way to the new Consumer Duty Act which was introduced on the 31st July 2023. However, there is still plenty of responsibility placed on you, the adviser, in terms of providing support to those who seek your services in vulnerable positions. In this article, we will explore some of the methods and behaviours you can apply to the way you do business to better understand and respond to the needs of your vulnerable customers. For more information on compliance and its relationship with our mortgage network, have a read of our recent editions of the Compliance Newsletter which features pressing articles written by our team of experts, which help you with your day-to-day compliance efforts.
How does the FCA define vulnerable customers?
According to the Financial Conduct Authority, a vulnerable customer can be defined as ‘someone who, due to their personal circumstances, is especially susceptible to harm, particularly when a firm is not acting with appropriate levels of care’. The concern the FCA has expressed is that immoral or unethical advisers in the industry will exploit, either knowingly or unknowingly, these types of customers and take advantage of the fact that they are not receiving the additional care and support they require to make informed decisions. While on the whole this sort of activity is in the minority, it is an unfortunate truth that some members of the wider industry have attempted to deliberately take advantage of vulnerability (think Payday lending and, to some extent, pockets of historic pricing practices relating to GI renewals).
What is the FCA criteria for vulnerable customers?
When thinking about what constitutes a vulnerability, it can be easy to focus on the obvious dimensions of age or disability (physical or mental). And while it is true that these are important, it is also essential to note that there is a broad range of ways vulnerability can manifest. The FCA wants brokers to consider the fact that vulnerability can arise from health, life events, resilience (i.e. an individual’s ability to withstand emotional or financial shocks) and capability (i.e. their knowledge and confidence in managing money).
How can vulnerabilities impact a customer’s ability to make good decisions?
At its core, a vulnerability, be it temporary or permanent, will have an effect on how a customer interacts and interprets the advice you provide them. The exact extent to which this is the case will depend on the nature of their vulnerability. In the most extreme circumstances, a customer’s vulnerability will have a significant impact on their engagement and judgement, which in turn will determine whether they are able to make rational decisions in response to the advice you offer. Just some of the consequences of failing to support a customer with a known vulnerability during the advisory process include:
- Increased stress levels due to difficult, or different, personal circumstances (due to the pressures a customer may be under during a relationship breakdown)
- Increasing time pressures due to additional responsibility (due to changes in family dynamics)
- Increasing pre-occupation or decreased ability to focus (brain is full/overloaded) limiting ability to manage information
- Reduced ability to digest complex information due to competing pressures i.e. emotional strain
- Lack of perspective especially when experiencing something for the first time, not fully understanding the broader implications and risks
- Unable to make a judgement, comparisons, or see the ‘bigger picture’
- Changing attitudes towards taking risks, people often become more ‘reckless’ and/or careless when under stress
How can you improve vulnerable customer outcomes?
Vulnerability should not be a barrier to customers obtaining the products or services they need, whether that be pertinent to mortgage or protection requests. It does however mean that they may require a higher level of care to ensure that the decisions they come to are rational and justified, with any and all advice provided facilitating good outcomes for them. This means when an adviser identifies a customer who is deemed vulnerable, they must respond and adapt appropriately to their needs.
| Mental Health | Relationship Breakdown | Financial Strain | Low financial capability / confidence managing money |
| Encourages the customer to talk about their situation and the impact it may have on their ability to make good decisions | Encourage the customer to talk and explain their situation | Encourage the customer to talk about their situation, how it happened etc. | Encourage the customer tot talk and explain their situation and the impact |
| Ask the customer what they need to help them with the transaction i.e. a family member/friend to support them during meetings | Sign post to external experts for guidance i.e. Supportline UK | Sign post to external experts to provide guidance i.e. citizens advice bureau | Sign post to external experts for guidance i.e. step change UK |
| Sign post to external experts i.e. MIND | Ask the customer what additional support they may need to facilitate them in making decisions that are most beneficial to them (meetings in bitesize) | Break the sales process down to give the customer more time to digest, understand and make good decisions | Ask if there is a family member/friend that normally supports them with decision making/understanding |
| There may be better times of the day when the customer prefers to discuss their needs so arranging meeting to suit their wellbeing | Ask what they need from you i.e. how do they prefer to communicate on financial matters i.e. face-to-face or online |
What techniques are there for supporting vulnerable customers
There are in fact a number of models designed to assist advisers with structuring their interactions with vulnerable customers. Starting off, the IDEA protocol can be used to help arrange and manage more in-depth conversations with customers, enabling you to ask the right questions and identify relevant information with respect to vulnerability. The key steps and questions are outlined below:
IMPACT
- What are you finding hard?
- What has been the impact on your day-to-day living?
DURATION
- When did this first start to happen?
- How long have you been experiencing this?
EXPERIENCE
- Is this happening often?
- Have you experienced this before?
- Could it happen again?
ASSISTANCE
- Are you receiving any support or taking any medication?
- Have you asked for more support/assistance etc.?
The BRUCE model is also an incredibly useful tool, suggesting wording and question structures for customers with mental health or capacity limitations. The key steps and questions are outlined below:
BEHAVIOURS
- Consider the things a customer says or does
- What has been the impact on your day-to-day living?
REMEMBERING
- Would it be helpful if I went over that again?
- Would it help if I put that in writing?
- Is there someone that usually helps you with your finances?
UNDERSTANDING
- Do you want to tell me what you have understood so far and I can fill in any gaps?
- Would it help if I explained it again?
COMMUNICATING
- What is the best way of communicating with you – writing, face-to-face etc.
- Is there a best/preferred time to communicate with you?
EVALUATE
- Would it be helpful if I went through the information again?
- Is there someone who normally helps you with decision making?
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