For years, brokers have considered the situation of the consumer and have taken into account any issues that have come to light. Most of this has been subjective and rarely documented – but all with good intentions. Consumer Duty comes into force from July, so we must now formalise this – just as how fact-finds moved from a subjective, informal approach to a formal, documented process. But where do we get the data on vulnerability?
Many have searched for databases of ‘vulnerable people’ but unfortunately, these simply do not exist. True, there is socioeconomic data which identifies cohorts of consumers but this is generally at a postcode level, rather than a personal one. And yes, there is credit data – which is personal – but it’s limited to financial vulnerability and affordability.
Consumer Duty has expanded the scope of vulnerabilities firms need to consider, monitor and evidence. While financial vulnerabilities still remain important factors, firms now need to review all potential issues – including health and lifestyle, domestic abuse, divorce and learning difficulties – to name just a few.
Larger tech firms use AI to interpret and assess their voice and text interactions with consumers. This can certainly be useful for large lenders – for example, to pick up complaints – but it is limited to those consumers we already communicate with and where the product is already in place. To meet Consumer Duty’s requirements, we must assess vulnerability prior to onboarding new customers.
While the FCA’s Financial Lives survey identified that around 50 percent of all consumers are vulnerable, but – in any given group – just who are they? The only practical and workable way to definitively locate that 50 percent is to screen all consumers.
In practice, the only robust approach is to assess all consumers directly, at the point of sale, and continue to do so on an ongoing basis. For mortgage brokers, this becomes an integral part of the sales process, just like the fact-find. The next big challenge is how to be consistent in the assessment, so others can understand vulnerability data today and in the future.
Companies training frontline staff have quickly found that everyone’s interpretation of vulnerability is different. It’s a bit like everyone deciding who is ‘rich’ or ‘poor’ – without guidance you simply end up with multiple answers, based on differing subjective viewpoints. The more we understand about the considerable variations of health and lifestyle issues, the cost overhead of training becomes prohibitive.
A far better approach is to use an assessment tool which encompasses an objective and consistent way of measuring vulnerability. For example, the MorganAsh Resilience System (MARS) generates a MARS Resilience Rating – much like a credit score, but for client vulnerability.
Brokers don’t need to remember the specific level of vulnerability which applies to – for example – domestic abuse, heart attack or divorce because these are all embedded within the tool. Furthermore, MARS includes different options to gather information – either by broker assessment or by the consumer completing an online assessment.
In practice, those firms using the training approach typically only identify a small proportion of vulnerable customers – usually in single figures. In contrast, companies using MARS report vulnerability levels at around 50 percent – in line with the FCA’s findings. Such a clear disparity shows that it will be tough for many firms to ensure fair value or that products meet clients’ needs – key areas of focus set out by the FCA.
Monitoring is a vital part of the duty; firms are expected to evidence and stand behind customers’ outcomes. Not surprisingly, the FCA’s recent multi-firm review identified that investing in technology and data strategy be a key priority for firms.
Whether as a standalone system, or integrated into an existing CRM system, technology is now available to not only mitigate the challenges of collecting vulnerability data, but to help deliver a competitive advantage for firms.