As the Financial Conduct Authority (FCA) continues to review how firms are meeting its vulnerable customers guidance (FG21/1), and with a new Government planning to launch a financial inclusion strategy, now is the time to take a fresh look at vulnerability and inclusion.
Three and a half years on from FG21/1, the FCA has repeatedly warned that firms are not doing enough to identify, treat fairly, and monitor outcomes for vulnerable customers. Its November 2023 Dear CEO letter asked wealth managers and stockbrokers to reassess the vulnerability of their customers, after finding 49% of portfolio managers and 69% of stockbrokers hadn’t identified any vulnerable consumers among their customer base. The regulator’s review of outcomes monitoring also found that many firms failed to adequately monitor outcomes for distinct customer groups, including those that are vulnerable.
There is a disconnect between the proportion of vulnerable customers the FCA expects and the proportion firms identify.
While firms have approached vulnerability with the right intentions, many are struggling to meet the FCA’s expectations, as they grapple with accurate identification, data and monitoring, defining good outcomes, and building in product flexibility.
There is a disconnect between the proportion of vulnerable customers the FCA expects and the proportion firms identify. The FCA stresses that all customers are at risk of becoming vulnerable, and its research shows almost half of us will be classified as vulnerable over our lifetime. But the proportion of vulnerable customers that firms identify varies widely - some report nearly 50% of their customers as vulnerable, while others report only 5-20%.
The FCA defines vulnerability in broad and fluid terms, which can make it difficult for firms to know where to start. Firms need a workable definition of vulnerability, focused on the needs of their target market and customer base. Drawing the definition too widely or generically can result in data which is difficult to operationalise in a meaningful way.
For firms with a low proportion of identified vulnerabilities, this can be due to system constraints that restrict their ability to accurately record vulnerabilities (particularly those that are transient), data protection concerns, and consumers' reluctance to disclose their needs, especially for product providers that may not have regular customer touch points.
Firms need to find fresh ways to encourage disclosure, such as providing more opportunities for customers to disclose during digital journeys, and building trust by articulating how the information will be used. They should also consider system and process improvements to enable staff to record and access information on customer needs and vulnerabilities, enabling a ‘tell us once’ approach and a single customer view.
Building high quality data is an important prerequisite to effectively monitoring outcomes. The FCA expects firms to demonstrate that vulnerable customers receive the same good outcomes as other customer groups. Where they identify potentially poorer outcomes, they should carry out detailed analysis, improve products and processes, and monitor the effectiveness of those actions. While many firms have made changes to post-sale processes, the next phase is to embed changes throughout the customer journey, including product design.
To drive progress, in addition to the points discussed above, firms should consider adopting a bolder inclusive design and needs-led approach, which delivers value for all customers, rather than looking at vulnerable customers in isolation. For example, functionalities to help customers with memory issues to pick up where they left off can also help any customer who has to leave a task midway through. This approach can deliver greater benefits for firms and consumers, and aligns with evolving societal and regulatory expectations in a world where almost half of us will experience vulnerability over our lifetime.
