In its review of how well customers with characteristics of vulnerability are being treated across the financial services sector, the FCA concluded there was no need to revise its existing formal guidance on this topic. However, it also recognised that product providers and advice practitioners were keen to obtain case study examples of good and poor practice that the regulator had encountered in its review.
This detailed information was duly provided in a FCA update, usefully framed in the context of its key expectations and requirements under specific elements of the Duty:
- Governance and outcomes monitoring
- Consumer support
- Consumer understanding
- Products and services
We cover each of these areas in turn, focusing on summarised details of specific interest to advice firms.
GOVERNANCE AND OUTCOMES MONITORING
In this area, the regulator essentially wants firms to monitor and regularly review the outcomes their clients are experiencing, to understand if any clients are not receiving good outcomes and why. This is particularly relevant where vulnerable clients are concerned.
Good practice
The firms performing well at monitoring outcomes tend to clearly define what a ‘good outcome’ is and they have clear processes in place to spot and escalate poor outcomes. They harness good quality data to understand the outcomes that clients in vulnerable circumstances receive, and have a strategy to make improvements where called for. These firms can demonstrate what they did when they identified poor outcomes, and are equipped to evaluate whether actions taken are effective. Moreover, their senior leadership is engaged in delivering outcomes for clients experiencing vulnerable circumstances, ensuring appropriate priority is afforded to their needs.
Areas for improvement
Some firms are unable to effectively monitor outcomes for vulnerable clients, a clear failing under Consumer Duty. To improve, they need to address their lack of clarity on what they consider to be good and poor outcomes. Poor quality or inadequate data lacking breadth and granularity is preventing some firms from effectively measuring client outcomes. Their approaches to when to act and what actions to take in response to poor outcomes for particular groups are unclear and inconsistent. Not least, there is insufficient engagement, challenge and direction from senior leaders to tackle the issue of vulnerable clients losing out compared to other cohorts.
CONSUMER SUPPORT
At base level, firms are expected to provide support that meets the needs of all clients, to include those facing vulnerable circumstances. No client group must be disadvantaged owing to individual needs. Staff, systems and processes must be geared up to deal effectively with a range of characteristics of vulnerability, with clients made aware of the breadth of support available to them to help them make sound decisions.
Good practice
Firms providing consumer support that effectively meets the needs of vulnerable clients take active steps to identify signs of vulnerability, which can be assisted by AI tools that analyse speech or log if clients mention possible characteristics of vulnerability. Encouraging clients to divulge their needs is a good move; most who disclose their circumstances report a positive experience. Good firms take a range of actions to ensure staff have the right skills and capabilities to identify and respond to vulnerability. This includes empowering frontline staff and having clear processes to refer clients promptly to specialist teams where appropriate. Tailoring consumer support to respond flexibly to clients’ identified needs indicates the firm is on track to deliver good outcomes for all.
Areas for improvement
A number of firms are failing to take steps to spot signs of vulnerability or actively encourage their clients to disclose their current needs. Interestingly, this was particularly evident in firms that provide primarily digital client journeys; this is concerning as firms increasingly adopt digitalisation. Where consumers did disclose changed circumstances, some reported having to do so repeatedly because their investment provider failed to make appropriate adjustments. Some firms are also not responding flexibly to clients’ requirements, or acting with a sufficient level of care when engaging with clients finding themselves in vulnerable circumstances.
CONSUMER UNDERSTANDING
In essence, firms must enable clients to make informed decisions about their investments, based on understanding the information they are given. The information should be tailored to individual needs considering their circumstances, including vulnerabilities. Communications with clients must take into account identified vulnerability, with multiple channels offered where possible so clients have a choice of how to interact.
Good practice
The firms which are adept in supporting consumer understanding make sure that verbal and written communications are clear, using plain English. They communicate in a timely fashion, and tailor communications to client segments, in particular offering a range of communication channels to suit the needs of clients in vulnerable circumstances. Vulnerable clients are given sufficient time to make informed decisions, plus the option to bring in a trusted person to help them grasp information. Good firms periodically test their clients’ understanding of communications and make changes if this is required.
Areas for improvement
There are some instances where the opposite of ‘good’ occurs with some firms. This includes a lack of consistency in providing clear information, and communications which do not flow in a timely way for vulnerable clients and which are too generic and thereby not tailored to their particular requirements during their vulnerable circumstances. It is also apparent that in some cases communications are not being tested for client understanding, with insight not being gathered and feedback not being sought.
PRODUCTS AND SERVICES
In this area, it is the product providers and not advice firms which are specifically responsible for designing and offering products that meet the needs and objectives of the target market. And ensuring they do not adversely affect some customer cohorts, including those with characteristics of vulnerability, and avoid causing foreseeable harm to targeted consumers.
On the other hand, as everyone involved in providing retail consumers with investments is responsible under Consumer Duty for avoiding causing foreseeable harm, advice firms should be alert to where providers may be falling down in their obligations under the Duty and Vulnerable Customers Guidance. Should this be the case, they should advocate for improvements by providers that will benefit clients who may be confronting vulnerable circumstances.
Detailed information published by the FCA on all the above areas is set out in Delivering good outcomes for customers in vulnerable circumstances.
Written by the lang cat
Key Risks
This article is issued by Liontrust Investment Partners LLP (2 Savoy Court, London WC2R 0EZ), authorised and regulated in the UK by the Financial Conduct Authority (FRN 518552) to undertake regulated investment business.
This information and analysis is believed to be accurate at the time of publication, but is subject to change without notice. Whilst care has been taken in compiling the content, no representation or warranty is given, whether express or implied, by Liontrust as to its accuracy or completeness, including for external sources (which may have been used) which have not been verified.
Disclaimer
This is a marketing communication. Before making an investment, you should read the relevant Prospectus and the Key Investor Information Document (KIID) and/or PRIIP/KID, which provide full product details including investment charges and risks. These documents can be obtained, free of charge, from www.liontrust.co.uk or direct from Liontrust. If you are not a professional investor please consult a regulated financial adviser regarding the suitability of such an investment for you and your personal circumstances.
