Vulnerable customers: The norm rather than the exception

The history of vulnerability

Since the FCA published Occasional Paper 8 on Consumer Vulnerability in February 2015, vulnerable customers have been a recurring item on many firms' agendas and it remains a key area of focus for the regulator. Whilst significant progress has been made in the identification and treatment of vulnerable customers, it’s fair to say that the broad and often subjective nature of the term has posed significant challenges for the financial services industry.

FCA guidance

Recognising those challenges and the need to provide further support, in July 2019 the FCA launched a consultation on proposed guidance for firms on the fair treatment of vulnerable customers (GC19/3) with the primary objective of supporting firms in fostering a culture of doing the right thing in order to mitigate the risk of harm.

The consultation process was subsequently placed on hold, so that the FCA could reprioritise its resources towards other urgent interventions to reduce consumer harms brought about by the pandemic. However, the FCA has now published a further guidance consultation (GC20/3). Whilst GC20/3 largely follows the same structure as GC19/3, it incorporates changes made in response to feedback received and provides greater clarity in some areas.

The prevalence of vulnerability

Following the finding of the 2017 FCA Financial Lives survey that half of UK adults show at least one characteristic of vulnerability, the call to action was clear. Whilst some firms had tended to view vulnerability as more of an exceptions process, the survey highlighted the pervasive nature of the issue by demonstrating that vulnerability will affect the majority of the population at some point in their lives. It follows that vulnerability is very much a business as usual activity and never has this been truer than it is at the moment.

COVID-19 impact

When you pause to consider the impact of COVID-19, it doesn't take long to appreciate just how many people meet the FCA definition of vulnerable. Consider, for example, the exacerbation of illness and physical disability, poor mental health resulting from isolation and an increased number of life events including job loss, relationship breakdown, caring responsibilities and bereavement to name but a few. Many of these issues are incredibly sensitive and whilst some people are comfortable talking openly about the associated challenges, there are others who will be less keen to be labelled as "vulnerable".

Arguably, the sensitive nature of the topic has been one of the biggest challenges for the industry. The term "vulnerable" may alienate some customers who do not wish to identify as such. Further, people often shy away from difficult conversations for fear of saying the wrong thing and front line staff are no exception to this. 

And yet among the things COVID-19 has taught us is that life is unpredictable and no one is immune from the challenges associated with an unforeseen change of circumstances. We can therefore only hope that it will drive increased awareness around vulnerability and unite people in a dialogue which recognises that although no two people's experiences will be exactly the same, there is no shame in asking for help and we can learn a lot from each other. In fact, talking openly with customers about the challenges they face is the only way to achieve innovative solutions that meet their needs and the best way to build and maintain trust.

What can firms do?

It is important for firms to respond flexibly to customers identified as vulnerable. In our view, the best way to achieve this is by empowering frontline staff to converse with empathy and offer flexible solutions that meet customers' needs. Whilst flexibility comes with inherent risks, such risks can be effectively managed through a robust risk management framework and we believe the opportunity to provide customers with solutions that meet their individual needs outweighs the risks associated with a more flexible approach.

However, responding to customers identified as vulnerable on a case by case basis is not enough and firms also need to proactively anticipate the needs of vulnerable customers throughout the customer journey. In some firms there has been a tendency to limit vulnerability considerations to frontline staff performing customer service functions. However, only by looking at the bigger picture and considering vulnerability at all stages of the product and service design process can firms work towards achieving the FCA's objective for vulnerable customers to consistently receive outcomes that are as good as those received by other customers.

Broadly, in order to demonstrate that they are doing all they can to achieve fair outcomes for vulnerable customers, firms will need to consider the following areas:

1. Understanding the needs of vulnerable customers

As a starting point, firms should take steps to understand the needs of vulnerable customers within their target market / customer base. Only by understanding the nature and scale of characteristics of vulnerability within their target market / customer base can they determine how best to meet those needs.

2. Skills and capability of staff 

A culture promoting the fair treatment of all customers, including vulnerable customers, should be embedded throughout the firm. Senior leaders should set the tone from the top and create and maintain a culture in which staff take responsibility for reducing the potential for harm to vulnerable customers. 

Frontline staff should receive effective training in identifying and responding to vulnerable customers. Where it would be disproportionate for all staff to receive specialist vulnerability training, firms should have designated vulnerability specialists with clear escalation routes from the frontline.

3. Taking practical action

Firms should use their understanding of the target market / customer base to determine what practical steps to take to ensure the fair treatment of vulnerable customers. This includes:

• Designing products and services that avoid potential negative impacts for vulnerable customers;
• Ensuring that products are designed with sufficient flexibility to be able to meet evolving needs;
• Designing sales processes that meet the needs of the target market and do not exploit vulnerability;
• Considering, and testing where appropriate, the impact that a product or service has on vulnerable customers;
• Reviewing products and services periodically (or where a prior need is identified e.g. through monitoring) to ensure that the product / service continues to meet the needs of the target market / customer base;
• Considering and responding to the different communication needs that vulnerable customers may have;
• Putting in place systems and processes that enable vulnerable customers to disclose their needs; and
• Making customers aware / sign posting them to third party support where appropriate.

It is worth noting that the FCA takes a channel agnostic view on the application of its updated guidance and the practical steps it expects firms to take. The measures apply equally to firms with staff dealing with customers face-to-face and/or via telephony, as well as to digitally led businesses. In the latter case, the FCA has also shown itself to be supportive of the use of innovative digital solutions to help firms identify and manage vulnerability issues, whether through the use of tracking analytics to measure website or app 'hover time' to pick up customer hesitation, or through the use of more interactive tools, such as webchat. Firms therefore need to take a holistic view on how best to implement new measures across channels to achieve the right customer outcomes.

4. Monitoring and evaluation 

Outcomes for vulnerable customers should be monitored and Management Information ("MI") / Root Cause Analysis ("RCA") used to highlight any issues and inform continuous improvements to processes. 

Conclusion

COVID-19 creates a unique set of challenges for firms by increasing the prevalence of customers with vulnerability characteristics at a time when many firms were already struggling to keep up with evolving regulatory requirements and expectations. However, it also creates an invaluable learning opportunity for firms in terms of understanding the challenges experienced by their customers and how they can best serve their needs. 

If firms can get their approach to vulnerability right then it will not only stand them in good stead with the FCA but it will also help them to remain competitive in an era where customers are becoming ever more demanding in  terms of what they expect from their financial service providers. 

Authored by Lisa Davey and Michael Oxlade