BR Guide Second Edition

77 76 WORKING WITH VULNERABLE CLIENTS WORKING WITH VULNERABLE CLIENTS The consultation closed in October 2019. The FCA plans to consult on revised draft guidance, including a cost-benefit analysis, after this. With one consultation on vulnerable customers already out, and another announced, it seems unlikely that the FCA is going to reverse its opinion on the matter. Given the predicted direction of regulatory travel, it would be wise for advisers to take steps around consumer vulnerability as soon as possible. BETTER CUSTOMER OUTCOMES An important part of ensuring vulnerable customers are treated appropriately is that it should not just be a compliance tick box exercise, and should instead be a part of the adviser’s core values. A vulnerable customer who has their individual circumstance taken into account when having advice issued is likely to receive more appropriate advice, and therefore receive a better outcome. Whether or not this should be considered a competitive advantage is debated across the financial services spectrum. Some argue it will naturally be an area where some will find a competitive advantage – for example from client recommendations. There’s also a good argument that those who deal sensitively with transfers of inter-generational wealth, may be better received by other family members looking for advice. Others argue that, instead of trying to gain competitive advantage, advisers should work together to raise standards across the board. Irrespective of which camp one falls in, advisers who ignore the topic and do not seek to improve how they handle vulnerable customers are likely to face a competitive disadvantage. VOLUME OF VULNERABILITY According to the FCA, over half of the UK adult population shows characteristics of potential vulnerability. Certain demographics are more likely to be vulnerable or potentially vulnerable than others. For example, males are less likely to be at risk of vulnerability than women, while people in rural areas are more likely to be vulnerable than those in urban areas. Due to the breadth of causes for vulnerability, these facts do not tell the whole story. For example, people in rural communities are less likely to be financially vulnerable, but are more likely to have vulnerability factors related to age, such as less access to technology. AGE RELATED VULNERABILITY According to an Intelligent Partnership report, the majority of clients being advised on BR are over the age of 65, so it is worth being aware of some of the specific factors causing this potential vulnerability. This list should not be considered exclusive, and all of these tend to become larger risk factors as the person ages further. While these factors are more likely to be found among older clients, other risk factors decline with age. The most notable factor is financial resilience. Those aged over 65 are more likely to own their own home instead of rent, among other things, and are generally more likely to be financially resilient than younger generations. 60% of UK adults 65 and over show characteristics of potential vulnerability Potential vulnerability by age SOURCE: FCA 52% 47% 48% 46% 46% 53% 69% 11% 11% 9% 5% 2% 1% 13% 18-24 25-34 35-44 45-54 55-64 65-74 75+ POTENTIALLY VULNERABLE Proportion of each age group that are potentially vulnerable 50% of all UK adults are potentially vulnerable IN DIFFICULTY Proportion of each age group that are in difficulty 8% of all UK adults are in difficulty (those who have already failed to pay domestic bills or meet credit commitments recently in three or more of the last six months) Protecting vulnerable consumers is a key priority for the FCA and we want to see firms explicitly embedding the fair treatment of vulnerable consumers into their culture. Where we find that firms are not doing enough to ensure that consumers are treated fairly, we will take action". CHRISTOPHER WOOLARD, EXECUTIVE DIRECTOR OF STRATEGY AND COMPETITION, FINANCIAL CONDUCT AUTHORITY