Vulnerability guidance from February 2021 encouraged training staff at the front end, but Consumer Duty added on three major enhancements: first, the need to proactively assess all customers, second to evidence vulnerability to directors and third, the need to monitor consumer vulnerability over the lifetime of the product. That evidence is itself required for fair-value and target-market evaluations. So, from where can you get this data?
In an ideal world, there would be a rich source of data from an organisation like a credit agency; this could tell us whether a customer was vulnerable but no such convenient data source exists. True, there is socioeconomic data which can suggest the propensity of an individual to be vulnerable based on factors such as market value of houses and local employment rates – but since these operate at postcode level their value is sorely limited. For example, they can’t tell us who has cancer or is bereaved. These may initially seem like trite examples, but as examples they stand because vulnerabilities happen on a personal level, not a postcode level.
The reality is that there can only be one source of data: from consumers themselves. The challenge is how to acquire this. Many companies would have collected some data when consumers initially contacted them, be it for a complaint or a claim. Indeed, this is a good and pretty logical place to start as there is likely to be a high proportion of vulnerable consumers within this cohort. But it doesn’t go anywhere near far enough. It’s still just a subset of a firm’s customers.
The deadline set to understand the vulnerability of all customers is frighteningly close: July 2023. From the FCA’s Financial Lives Survey we know that around 50 percent of people fall into the vulnerability category – and live results from MorganAsh supports this finding. How do you identify which half of your customers are vulnerable?
The conclusion is inevitable: there must be a process put in place to assess each customer. Most holistic advisers do this when they undertake annual reviews, most brokers when mortgages are up for renewal. Both are unlikely to get all customers evaluated by the July 2023 deadline. However, this is both a practical and pragmatic solution that in our view will be accepted by the FCA.
Moving forward, should advisers assess consumers individually, or should we perhaps use an online process – just as we do for risk assessments and attitude-to-loss assessments. Would it be better to use third party systems to undertake assessments? These are all viable options and there is no single answer to this; each firm will need to adopt its own approach, depending on cost and how they interact with consumers.
Objectively, by far the most efficient method is to use an online questionnaire. Such tools already exist and when integrated within CRM systems, the process can be mostly automated – minimising the administrative overhead.
By comparison, the personal method – for the adviser to talk with consumers – is likely to be time consuming and only suitable for some. This method will still be needed as a fall-back, even within automated workflows. Older consumers may well not be digitally literate or they may be reluctant to provide the information online. There will always need to be the back-stop of the broker completing a review either face-to-face or over the phone.
Many within financial services consider questions on health and lifestyle to be intrusive, but this is only due to us not being used to engaging with consumers in this way discussing health issues. Interestingly, a 2019 study of 2,000 UK adults by The Debt Advisor revealed that consumers actually found it easier to discuss mental health and infertility than money, with twenty-five per cent of respondents believing conversations about personal finances to be a no-go as it makes them feel ‘anxious’ and ‘nervous’. It would seem that in conversations centred around financial matters, discussing vulnerabilities won’t be the hardest part of discussions.
Like any interaction with consumers, there is a ‘value exchange’ of information. Once consumers understand that they are likely to receive a better service – and one tailored to their personal circumstances –they are almost certainly going to be happier divulging such information, because doing so is good for them. This has to be an important area of focus: using vulnerability data to deliver better services. It’s also, of course, good for firms as it meets the FCA’s Consumer Duty requirements.