There are occasions in life where almost everyone will feel vulnerable and there are many reasons for this.
But in every circumstance, the last thing any vulnerable person needs is to be taken advantage of and that includes financially. So, regulators want to ensure that those advising or providing financial services do all they can to ensure such customers are catered for appropriately. What is more, firms that mis-sell or fail to treat customers who clearly have additional needs unfairly, run the risk of censure, penalties and damage to their reputation.
This is why it is a major focus for the Pensions Regulator, which is seeking to ensure that people do not fall for scams such as cold callers trying to pressurise victims into cashing in pensions early or putting their funds into bogus investments.
A priority area for FCA
The FCA’s recently published Our Future Approach to Customers consultation document has the treatment of vulnerable customers stated as a priority. On the issue of regulating, it stated: “Consumers in vulnerable circumstances may be significantly less able to represent their own interests than the average consumer, and more likely to suffer harm. Any consumer can become vulnerable at any time in their life, for example through serious illness, bereavement or loss of income. The FCA expects firms to pay attention to possible indicators of vulnerability and have policies in place to deal with consumers where those indicators suggest they may be at greater risk of harm.”
According to lawyer Iain Sawers of Pinsent Masons: “The strongly consumer-centric approach by the FCA is a feature of financial services regulation in the UK which firms will be well familiar with. There is a pressure on financial services firms, however, to increasingly create cultures with consumers at their core.”
"This can be challenging” he goes on to say, “not least because of issues described in the consultation like regulating for vulnerable consumers, where commitments can often be long-term and products and information can be complex, taking account of wider environmental challenges that are rapidly affecting how consumers of financial products make decisions, and addressing access and exclusion issues which can affect consumer wellbeing.”
So risk managers may want to ensure that vulnerable customers are a focus – and this can mean addressing staff training and any cultural issues that may exist. Any preconceptions may also need challenging and it should also be remembered that vulnerability can be fluid and there can be many guises, including:
- Physical and mental illness
- Disabilities, including learning difficulties
- Being elderly, typically viewed as over 80 and where there may be dementia
- Language barriers, such as speaking limited English
- Losing a job, losing a home and debt
- Relationship breakdowns
- Being a victim of crime
- Responsibilities as a carer
This is a challenging area and because there are so many different circumstances, it can be difficult for an adviser to know what action they should take and if they should flag up a particular case. The regulator has said that customers need to take ‘reasonable responsibility’ for the decisions they make, but in the case of vulnerable customers, it is not always clear if they are unable to do this.
This is why staff need to be aware of obvious and less obvious areas of vulnerability and have policies in place to deal with them. And this is also an area where online training will be insufficient - open discussions should be encouraged, with staff able to learn about different scenarios. It may also help to bring in external trainers and even charities to ensure there is sufficient understanding of the issues.
Increasingly, the regulator wants to see firms offering a more tailored approach and even if they may not get things right on every occasion be ready to meet the needs of a diverse customer base, including those who may need extra support.