Series 2 Episode 8: Vulnerable customers – from expectations to action

Andrew Strange:

Hi everyone and welcome to our latest Risk & Regulation Rundown podcast. I’m Andrew Strange, your regular host, and as usual, we are recording remotely, so please note this might impact the quality of sound.

In this episode, we are discussing the fair treatment of vulnerable customers, and I’m delighted to be joined by Angus Goldie, a PwC Partner who works with a number of our clients in this space, and Conor D’Arcy, Head of Research and Policy at Money and Mental Health. Welcome to you both.

Conor D’Arcy:

Thanks for having me.

Angus Goldie:

Hi Andrew.

Andrew:

After a prolonged period of multiple consultations, the FCA published its final guidance on vulnerable customers in February this year. The guidance, which is immediately applicable to all firms, was accompanied by feedback on previous consultations, and sets out the FCA’s views, including some examples of good and poor practice. Clearly, in the current economic environment, this guidance is even more important for firms. PwC have also recently conducted a survey with firms on their preparedness, with a follow-up event for our clients in late March, but today, I really want to hear what our guests think.

Conor, let me start with you, thank you for taking the time to join us today. Do you want to start by saying a little about Money and Mental Health, and the kind of issues that you see people facing?

Conor:

Sure, we are a charity set up five years ago by Martin Lewis, the consumer campaigner. Basically, from lots of his work he found how financial issues could often have a big impact on our mental health. When you are struggling financially it is hard to stay mentally well, but similarly, when you have a mental health problem, how that can make it harder to manage money, or to make financial decisions. We basically work with our research community, which is a group of 5,000 people with lived experience of mental health problems, as well as working with firms to try and figure out how services can be best delivered to support them. The issues that the FCA’s guidance touches on are really core to us in lots of the things that we hear coming up from people with mental health problems.

Andrew:

Fantastic, sounds like really important work, so thank you for taking the time to join us. Let’s kick off with a really easy first question for you, Conor. Do you think the new vulnerable customers guidance will actually help?

Conor:

Yeah, I do think so. There is lots in there that’s really useful. As you said, it has developed over the years and it has turned into a really good product. Firms that we talk to and we work with them a lot including through our mental health accessible programme, firms will want to do the right thing by their customers, particularly vulnerable customers, but there is often questions around what exactly they should be doing, how best to do that, who to support most. The guidance offers lots of really useful practical examples of things that firms can be doing, case studies, those sorts of things that are really going to give that bit of extra information to firms, who are wondering how best to support their customers. There are some questions over monitoring enforcement that we might come back to later on, about how much of a difference this really makes and how the FCA approaches that, but for firms seeking to make sure that they are doing the right things, there is lot in here that’s going to be really helpful.

Andrew:

Thank you, yes, we will come up to that later on. Firstly, I was reading the recent Financial Conduct Authority financial lives survey, which said that maybe 50% or nearly 28 million people are potentially demonstrating characteristics of vulnerability. Do you think that actually, if we are talking about that many people, that there is a risk this dilutes the message and maybe disadvantages those people who really need help the most?

Conor:

What we find through our work is that mental health problems are really common, in a given year, about one in four of us will experience a mental health problem and that raises to one in two across our lifetimes. So this isn’t a niche issue by any means. Often, there is also a really important issue around stigma and mental health. We’ve come a long way in the last couple of decades, where people can feel more comfortable about talking about this, but it’s still really challenging to talk to your financial provider around this and concerns over how they might react, whether that might affect your ability to get credit, are definitely present in lots of people’s thinking.

That’s why the universal approach, and taking this quite broad stance on vulnerability is the right one, because it means that across a range of services, and product design and support, firms should be thinking about how would we be supporting people if someone did have a vulnerability, how would this service be working for them, have we thought about how it might need to be tailored for them? At the same time, I don’t want to forget about the people who really do need that more wrap around act of support, where their needs are greater. There is again lots of good examples in this guidance over how those people should be supported too.

From firms’ perspective, it is about taking that universal design approach, thinking about how can we make sure that all of our services work well for people with vulnerabilities, but also again making sure that people who do need that more proactive support are able to get it too.

Andrew:

Angus, if I can bring you in here – so this is not a niche issue, what’s your view from your experience in working with clients around some of those numbers, the one in four, or even the one in two set of numbers that Conor was talking about, is that your experience with firms?

Angus:

Firms typically have very much lower numbers of vulnerable customers, but there are quite a few valid reasons behind that. One is, vulnerability is very often transient, and as Conor touched on there, customers can feel reluctant to discuss vulnerabilities, especially if it relates to financial matters or potentially mental health problems that they have, they may not feel that a bank or an insurer, is someone they want to have those discussions with. Quite often it is masked from our clients, and also now with the drive towards digitisation it is increasingly difficult for vulnerability to be identified. We would normally have historically relied on maybe a face-to-face interaction or a call centre or telephone interaction to identify vulnerability, and quite a lot of services have gone online during the pandemic, and that again makes it more difficult for our clients to pick up vulnerability potentially.

Andrew:

Yeah, I can imagine some of the operational challenges around that are quite difficult. What do you see as the biggest challenges for firms in complying with this, and/or where should firms start?

Angus:

If you wind the clock back quite a few years, then age was a proxy for vulnerability. Now we’re in a considerably more sophisticated environment. What we are seeing is firms are focussing on the members of staff that talk with clients and talk with their customers and making sure that they are educated around vulnerability. There is a lot of setting up of vulnerable customer teams to be able to handle those interactions with the right empathy and with the right skillset of members of staff, but really what needs to happen is, we need to go right back to product design. We need to look at how products are designed, how customer journeys are designed, and where are the key moments in those journeys, and in those product lifecycles where we might be made aware, or we might become aware of vulnerability, and what needs to happen as a result.

There is a lot of work going on at the tail end of the process, if you like, through customer interactions and monitoring, but we need to wind that back further up through to product design and customer journeys.

Andrew:

Yeah, that’s interesting. Speaking of challenges for firms, Conor, you’ve spoken about the importance of firms focussing on outcomes and preventing harms in the first place. Perhaps, as Angus says there, around the product design piece to an extent, rather than just focussing on the prevalence of vulnerabilities amongst their customer bases. Do you think that the guidance is going to help them to actually do that?

Conor:

Yeah, I would definitely echo Angus’ point there on the importance of product design, where it often hasn’t been the prominent thing that firms have been thinking about, but again the guidance does help to put more emphasis on that. Thinking about, again, the customer frontline staff, but also more senior managers and other people in that journey. As Angus was mentioning, more services are now available online and what we hear a lot from people with mental health problems is how the online journey can either facilitate good informed decision making, when it’s done clearly and well, or actually can lead to people making more rash decisions, not really being fully aware of what they are signing up for, so that can be really important. This is definitely an evolving area, where firms are bit clearer on, we know how to support people, we know about training to give to staff who are on the phones or in branches, but there is also some good evidence of developing awareness around preventative actions. Things like, around issues with gambling, which can often go hand in hand with mental health problems and addiction, but what we’ve seen a lot is banks taking action with introducing gambling blocks, which can be a really important tool to help people to control their own spending and gambling, and help avoid the harm from happening in the first place, rather than just dealing with the debt when it arises.

Angus:

Can I jump in there, I think there is a point there also about firms’ willingness to engage with the wider ecosystem of charities and other agencies, who can help customers with matters like mental health, or debt, or gambling. That point around the customer journey isn’t just firm specific, its about actually, how can we link in with others to help our customers in these circumstances.

Andrew:

Yeah, thanks Angus. Certainly, that externalities piece, was something that came through in PwC’s survey, wasn’t it, that it’s partly your internal work, but partly your external challenge as well. Angus, what firms are thinking about here is lots of operational issues, but the other side to that is what supervision is going to look and feel like from the regulator. What do firms actually need to be able to evidence they have done here?

Angus:

In the first instance, it is about taking action. How will firms show that they have taken on board the guidance and have implemented change, which allows them to better cater for customers who are potentially vulnerable. Against the backdrop of digitisation that we touched on earlier on, that means that actually vulnerability needs to be considered throughout the change cycle, the customer journey, and product design. Currently, the focus is on staff training and awareness, which is very valid, as well as looking at outcomes and how those are delivered. What firms will really need to do is to demonstrate more of a package of change, which will allow them to identify and help customers, who have vulnerability throughout the product lifecycle as they go forward.

There’s a lot of good work going on and certainly some significant investment from many clients on that, but there is a need for better tools and better appreciation across the change and the customer journey lifecycle.

Andrew:

Thanks Angus. Conor, taking that point on supervision, I believe in response to the draft guidance you had some views around the importance of effective supervision and enforcement being really essential to ensuring that the guidance worked, and certainly at the stage of the draft guidance, you felt that it lacked sufficient detail on how the FCA will supervise and enforce compliance. Do you think anything has really changed in the final guidance or has it changed enough? Secondly, the FCA signalled that they are looking at doing a review on this in 2023 or 2024 even, which feels quite a long way away. Do you think there’s a risk that firms don’t really feel this is real for them at this stage?

Conor:

I think it has improved and there is a bit more clarity in there, there are some more examples on exactly the sorts of things that the FCA should be asking about, but there are still questions over what exactly those supervisory discussions will look like, how will they be different, what will the consequences be for firms if they are found to not be doing what the FCA is expecting of them. There is still a bit of the proof being in the pudding, but there are definite improvements from the previous versions, which should help firms to make sure that they are doing the right thing.

There is also some good stuff around the FCA working with the Equality and Human Rights Commission around firms’ responsibility on the Equality Act, where they should make reasonable adjustments for groups who might need a bit more support, including people with mental health problems. There’s lots of good stuff there, and 2023–24 is still definitely a long way away and there are risks that we don’t see the change that we need, but I do also think that there is good scope for progress and firms that are seeking to make that positive change have lots to build on here.

Andrew:

There is guidance in the consultation around good and poor practice, but clearly there is potentially a big gap between minimum standards and best practice in the industry. For example, the FCA doesn’t insist on proactively identifying vulnerabilities through web interactions. Angus, is this something we are seeing firms do any way, which is something that actually Money and Mental Health called for in one of its responses, or does this make it inevitable that firms end up on a bit of a spectrum in terms of compliance, and therefore we are actually not really achieving very consistent outcomes for vulnerable consumers?

Angus:

The point here is that it is very difficult for firms to identify vulnerability if a customer is on a self-service journey. However, that journey should have optionality in it for customers to speak to somebody if they feel that they cannot use that process, or they are not getting the right level of service and they need to interact in another way. There is a need for optionality. The outcomes, the ultimate outcomes for vulnerable customers, and non-vulnerable customers should be the same, but the way they get to those outcomes is potentially different, because customers have different needs and may need further explanation or alternative pathways to get to those outcomes.

There is a bit of flexibility in there, and firms will end up on a spectrum, because all firms have different channels of communication with customers, different types of customers. So there is a spectrum which will come out and it’s easier to see where leading practices are going now in terms of actually, it will nudge towards more and more ability to use different channels and access different channels, maybe change journey during channels if I feel I am vulnerable or I want to talk to somebody rather than interact with a chatbot.

Andrew:

Thinking about that spectrum of outcomes, in terms of the metrics that firms should be looking at, I was struck by a recent conversation we had with the Financial Conduct Authority on this, where I felt they focussed disproportionately actually on complaints, certainly on things like the root cause analysis of complaints. Surely, if this is about complaints, then firms have already failed?

Angus:

Complaints are a useful source of insight, but it’s very much after the event somewhat, a bit of rear-view mirror diagnostics. Our view is, we need to look at that customer journey, and we need to look at the risks to customers along that journey, where products might behave, or service channels might not deliver in a way which is going to help a vulnerable customer. That’s the way to really address vulnerability by looking at the customer journey, assessing the risks along that journey, and working out what needs to happen as a result of those customer interactions at that point. So complaints are useful, but it’s a very small subset of customer interactions by the time you get to somebody complaining. There is an awful lot that happens before that, which can really inform the view of which customers are vulnerable, and how they need to be treated.

Conor:

I will just add that from the perspective of people with mental health problems, often it can be a real struggle to go through the process to make a complaint. You might have already found it very difficult to get in contact with the firm providing you with the service in the first place, so then to have to go through an additional process of saying, ‘the service wasn’t up to scratch, these things went wrong,’ can be really tricky. Relying solely on complaints is likely to miss out a big section of people that are struggling.

Angus:

And Conor, we are doing quite a lot of work in the collections space now, and we see it relatively often there, especially when thinking about the new definitions and the guidance with regard to financial resilience and capability, and customers are very reluctant to talk about these things. It is hard to say, ‘I don’t understand something,’ when you may have a credit card loan or something like that. So there is an awful lot of work that needs to go on further back in the chain.

Andrew:

Maybe I will turn to Conor first in this, but clearly we can’t do a podcast at the moment, without really talking about COVID-19. Conor, do you think that people’s vulnerabilities and situations are more complex in the current environment? And Angus, you’ve talked a little bit about digitisation, but is COVID-19 encouraging that move towards digitisation and changing the approach that firms are taking?

Conor:

There has been some welcome things in the strangeness of the last year. We’ve all become much more aware of mental health and how it can affect us, and we’ve seen some really worrying stats about the increase in mental health problems across the population. There has also been lots of learning over how we can flex services and how they can be delivered differently, still with high levels of service and good outcomes for both firms and for consumers. There is probably lots to learn. The big concern that we are hearing from lots of people with mental health problems is that everything just goes back to normal. All the systems that were previously there, that often weren’t very accessible for people with mental health problems, we just go back to those as normal and the lessons aren’t learned, and the flex and the adaptations that have needed to be put in place for the last year, just disappear. There is probably lots for firms to reflect on what have we done differently, what kind of feedback are we hearing? I know we’ve just said don’t rely solely on complaints, but has there been stuff that clearly hasn’t worked and actually, we’ve had fewer issues raised in those areas or are there new things that we could be doing that build on changes that we’ve made already.

There is going to be people who are struggling financially, where the impact of job losses or ongoing furlough are still going to leave people in more difficult situations. All the disruption we’ve had is affecting people’s mental health. There is a good base there for firms to build on, to say, how can we learn from this new guidance, learn from the lessons of the last year to try and provide that better service.

Andrew:

Angus, do you have a view from the increased digitisation perspective on the impact of COVID-19?

Angus:

Certainly, that’s been accelerating. What our clients have experienced has been in their call centres, calls have been taking longer and that’s resulted in some increased queues, but also there has been a more rapid uptake of digital services, self-service and apps. For vulnerable customers, there is a bit of a dilemma there in terms of, it might be easier to get served online, but it may not actually be suitable for me, so do I want maybe a longer queue at the call centre. Anecdotal evidence from customer interactions in call centres says that actually empathy is faring very well, if you like, throughout the pandemic. Customers feel that they are being listened to and the call centre managers are telling us that some calls are taking longer as a result.

There is a bit of a balance there, but there is generally a move towards self service or digital customer journeys, and that is a factor of modern life and that will carry on post-pandemic, because of cost pressures that many of our clients are experiencing.

Conor:

Just to reinforce the point Angus was making earlier around having those different channels available. It is more important now than ever, we know that high numbers of people with mental health problems can really struggle on the phone and having to wait on hold for a long time when you are feeling nervous, can just make that so much worse.

Again, building in the different options there, to make sure that people can get service and support in the way that they need it is really crucial.

Andrew:

Thanks Conor, thanks Angus.

So Conor, just a final thought from you, do you think the guidance goes far enough, and I ask because I am aware that we are waiting for potential new duty of care proposals from the FCA, which are due later on this spring, and that could even see potentially a statutory legal obligation placed on firms. Does the guidance go far enough, or do you think something like duty of care is necessary, as a real stick to drive this forward?

Conor:

The guidance is definitely a move in the right direction. Again, lots of the firms that we speak to want to do the right thing, and this gives them the extra information on how they should be doing that, things they might not have thought about, ways to go about informing themselves, making sure that what they are offering is what their customers really need. But I do think that there are probably still some gaps, and some of that, as we said previously, is some of the detail around the enforcement and monitoring, and exactly what’s going to happen to firms who aren’t giving that extra service or that differently provided service to their customers who might have vulnerabilities, what happens to them. Without that, there are some questions over how big of an impact this makes. Duty of care feels like that extra stick as you said to nudge people along, but we’ll have to wait and see what the FCA’s proposals are, but we will keep a keen eye out for that.

Andrew:

Thanks Conor, and Angus, talking of nudging people along - the FCA had some original aims for this, do you think this is going to change business models and firm’s cultures, and do you think actually this is going to deliver outcomes for vulnerable consumers that are as good as those for consumers who aren’t vulnerable?

Angus:

I can see that happening, but these things take a long time, change takes a long time to implement, and this is a journey that we are on here. Firms are much more aware of vulnerable customers and are taking their responsibilities really seriously. There is definitely management of tension on vulnerable customers. The change has really got to start from now on to meet the FCA’s expectations, because standards evolve. In two or three years’ time it’s quite clear what leading firms will be doing, and so really we need to have some change in the industry which addresses the needs of vulnerable customers from products through the customer journey into outcomes, so that we get it right for vulnerable customers all the time.

Andrew:

Thank you both for your time today and for a really interesting discussion. It has been fascinating to hear about the approach that firms are taking and the issues that consumers are facing on what is clearly a very live, current issue as our own survey demonstrates with firms at the moment.

To our listeners, I hope you’ve also found this episode incredibly helpful. Please do share this podcast and subscribe to future episodes. I will be back with our next episode after Easter.