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Are advisers struggling to recognise vulnerability amidst FCA review?

By: Rachel Powell


Under Consumer Duty, firms ‘should act to deliver good outcomes for all customers, including those with characteristics of vulnerability’. The FCA announced at the end of March that they are currently reviewing how firms are acting to understand and respond to the needs of customers in vulnerable circumstances and will share their findings later this year.

As this vulnerability review takes shape, it places a spotlight on how advice firms are identifying vulnerable customers within their own client banks as clearly this identification will prove pivotal in these customers being treated in a way that meets the FCA’s expected standards.

In the latest findings of Research in Finance’s Retail Consumer Interests Study (RCI), which focuses on the investing habits and attitudes of 1700+ UK investors, we found that more than half (51%) of our participants  exhibit vulnerable characteristics. This finding is based on indexing derived from our survey questions that cover the FCA’s four categories: adverse health conditions, recent life events, capability issues and financial resilience.

This aligns with the number identified as vulnerable by the FCA ‘s most recent bi-annual Financial Lives study, where the regulator found close to half (47%) of the 19,000+ UK adults surveyed display one or more vulnerable characteristics.

Are these vulnerable clients being identified?

Despite this, in our previous wave of RCI during Q3 2023, we asked more than 200 wealth managers what percentage of their client bank they considered vulnerable as per the FCA’s definition. Here, the average came out at just 14%. Notably corresponding with this statistic, 1 in 10 of these intermediaries said they found it difficult to even identify their vulnerable customers.

When we then spoke with some these advisers at the end of last year to better understand how they are navigating identification and treatment of their vulnerable clients, the percentage the FCA have suggested as likely to be classed as vulnerable (which concur with our own recent findings), was front of mind for some. One shared with us:

“Most of the research we’ve taken on board we’ve got from product providers and mainly the 360 Network, who set up a couple of very good financial adviser seminars, discussions and online learning courses, which has been really helpful internally […] when we see the regulator seems to feel that somewhere between eight and nine out of ten people are vulnerable at any particular point, when we’ve looked at all the characteristics of vulnerability, we’re expecting that if we’ve not got at least half of our clients being listed as vulnerable for one reason or another, we’re probably not asking the right questions.”

However, for others, this process is proving to be less than straightforward. Another said:

The vulnerable client thing? Yeah, it is a minefield, isn’t it? It’s a nightmare. To give you a context, at my last one-to-one with the network, we had a debate around the fact that they said my vulnerable client numbers look low, as in the clients who were flagged on our systems as vulnerable clients, which is interesting because I thought it was high. I mean, I think I’m quite good at kind of having those discussions, opening that conversation up and sort of flagging it appropriately but I suppose mine was perhaps somewhere between a quarter and a third of clients, and they were kind of saying it should be much higher.”

With the percentage of clients being identified as vulnerable falling short of the FCA’s expectation in some instances, comes the realisation that vulnerable clients may be ‘slipping through the net’. Therefore, it remains to be seen what the FCA’s vulnerability review might reveal in terms of its evaluation of advice firms’ identification processes, and what this may mean for the firms reviewed.

How can we help?

We have a deep understanding of the UK Consumer Duty requirements and have created our own vulnerability index which aligns with the FCA’s four categories: adverse health conditions, recent life events, capability issues and financial resilience. If you would like to know more about how we can help you or your clients recognise vulnerable characteristics and meet FCA standards, please get in touch by calling +44 (20) 7104 2235 or emailing Richard Ley or Mick Hrabe.

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