Back in late 2017, Macmillan Cancer Support launched its ‘Banking on Change’ campaign, which set out to highlight the weakness in a financial services system that often failed to identify vulnerable customers – and then accommodate those vulnerabilities – even if they were acting within the law. This was the catalyst for the FCA’s work on vulnerable customers that is now becoming so important for the investment and financial advice sectors.
At the time, investment and financial advisers were not necessarily considered part of the problem. “The consumer lobby was saying there were dreadful things going on,” says Alison Gay, senior public affairs consultant at the lang cat. “Banks were not dealing well with people who had been recently bereaved, for example, and people with visual problems could not get the documentation they needed. There were all sorts of difficulties.”
A widespread review was launched by the regulator – with understandable concern prompted when many of the wealth management and financial advice firms surveyed merrily asserted they did not have any vulnerable clients at all. While the face-to-face nature of much financial advice certainly provides some defence against overlooking vulnerable clients, the FCA still felt the need to act.
It issued guidance to help financial services firms support consumers in vulnerable circumstances in 2021 and introduced Consumer Duty in 2023. Then, in March of this year, it published its findings on how firms have taken action to support customers in vulnerable circumstances, consumer outcomes and the effectiveness of existing guidance.
The report pointed towards decent progress on identifying vulnerable customers and treating them well but still revealed some problems. It found, for example, that just four-in-10 vulnerable customers say they have disclosed their needs to their financial services provider. Furthermore, when they do, their experience is far better – three quarters of vulnerable customers who told their firm about their circumstances said that staff asked the right questions, ‘cared’ and took action to provide the support they needed.
“Just because individuals have sufficient wealth to seek the services of a financial adviser, it does not mean they cannot still be vulnerable.
We don’t talk about ‘vulnerable customers’ – we talk about ‘customers in vulnerable circumstances’. Anybody can be a vulnerable customer at some point in their life – and in fact, most people will be.”
For its part, the 2024 Schroder UK Financial Adviser Survey identified an increase in advisers considering the management of vulnerable clients as a priority – with 16% now stating this to be their first priority for the ongoing implementation of Consumer Duty compared with 9% in November 2023.
“The majority of advisers (63%) only identify less than 10% of clients as falling into the vulnerable category,” it added, however. “In reality, the number could be significantly higher, with a recent report suggesting 17% of customers in the UK identify themselves as vulnerable and, when assessed against the FCA’s criteria, as many as 67% could potentially fall into this category.”
Wealthy, but vulnerable
The message would seem to be that most financial advice firms are doing well. Most advisers still meet people face-to-face, and are well-versed in spotting vulnerabilities – financial coercion, poor financial management, lack of understanding, alongside social problems such as gambling or addiction.
Nevertheless, it is clear that just because individuals have sufficient wealth to seek the services of a financial adviser, it does not mean they cannot still be vulnerable –be that the newly widowed who has never taken care of the family finances or the hitherto-impoverished 20-something who has just inherited a great deal of wealth.
“What can often be easily forgotten is that vulnerability can affect anyone, regardless of the level of assets they may have,” points out Anthony Scammell, customer outcomes director at Quilter. “Indeed, many of us either experience vulnerability ourselves or know someone who is vulnerable, so it should be at the forefront of our minds when dealing with clients.
“While wealthier people may not experience the anxiety of paying a monthly bill, they can have a change in circumstances – whether that be divorce, health-related or another reason – which can heighten their fears around their finances. Often that vulnerability becomes recognised after the fact and so it is about ensuring there are process and practices in place to identify and record vulnerability at the earliest stage possible.”
Identifying vulnerability
Advisers need to be alert to vulnerability, says the lang cat’s Gay, adding: “We don’t talk about ‘vulnerable customers’ – we talk about ‘customers in vulnerable circumstances’, which is a different take on it. That is the way the FCA prefers to think about it because, as far as it is concerned, anybody can be a vulnerable customer at some point in their life – and in fact, most people will be. One of the things the FCA has been trying to get across, is that any of your customers might need a bit of extra thought on how you communicate with them at any stage.”
Gay goes on to argue there need to be checks and balances within advisers’ systems. “There should be red flags in adviser systems that say, ‘Be careful how you are dealing with this person’,” she explains. “Alternatively, if they have already told you they have difficulties with hearing or sight, say, you need to change the way you communicate with them.”
AI allows us to analyse large data-sets, including customer behaviours and transactional patterns, to identify early signs of vulnerability.”
There also needs to be greater focus on the conversation between client and adviser flowing both ways. “The industry has come a long way when it comes to the treatment of vulnerable clients,” says Quilter’s Scammell. “As the FCA data clearly shows, however, sufficient levels of trust have not been established with everyone to encourage vulnerable clients to open up. As such, while initiatives and technology can help identify potential instances of vulnerability, some may be falling through the cracks.”
To that end, alongside other initiatives, Quilter has introduced a ‘tell us once’ service at the group level so that, if one area of the business is notified of a vulnerability, every other business unit that client may have an interaction with is made aware and communications can be tailored accordingly.
Some have suggested this is an area where AI could play a role. At its Vulnerability Summit in 2024, Diane Berry, chief data and analytics officer at Phoenix Group said: “AI allows us to analyse large data-sets, including customer behaviours and transactional patterns, to identify early signs of vulnerability. This should be an aid to customer-service teams, allowing them to ask, ‘How else can I help this customer?’” Berry added AI would need to be used cautiously, however, because it can also be a problem for vulnerable customers.
There are also elements of product design of which advisers and clients both need to be aware. “How do you design products so you don’t disadvantage people?” says Gay, as an example. “Or how do you make sure somebody who has particular needs isn’t going to experience worse outcomes than somebody else?” An obvious example here would be investing in the stockmarket, where someone with a low tolerance for risk but a greater inclination to panic-sell would likely receive a worse-outcome than a more market-literate investor.
Ultimately, argues Scammell, identifying and accommodating vulnerability should sit at the heart of a financial services company’s culture. “This is not a box-ticking exercise,” he says. “Businesses will be expected to demonstrate how they have improved processes and how good customer outcomes are being met for everyone, including those who are vulnerable.”
