"With 2023 underway, there are a significant number of factors which mean that more older customers could find that they qualify as vulnerable."
While vulnerability has been on the FCA’s agenda for a while now, it is becoming even more of a priority for the industry – given the pandemic and the current cost-of-living crisis as well as the upcoming introduction of Consumer Duty in July 2023. However, given most people will qualify as vulnerable at some point in their lives, as it comes in a variety of different guises and is caused by a host of different factors, it can be challenging to spot.
According to the FCA, 46% of UK adults – 24.1 million people – have at least one characteristic of vulnerability. Now this figure should perhaps come as no surprise as vulnerability can be physical, mental, monetary, or emotional, and can be temporary, sporadic or permanent in nature. Indeed, the preferred wording from the FCA is ‘customers in vulnerable circumstances’ rather than ‘vulnerable customers’, referencing that vulnerability is a state that can come and go.
This is especially true in the later life lending sector as while older clients are more prone to vulnerability, they are not necessarily vulnerable nor expect to be treated as such. That said, as a demographic, they are more likely to feel the impact of the cost-of-living crisis due to their fixed incomes and the relatively large proportion of their income they spend on costs such as food and utilities. A potential source of financial vulnerability which may not be recognised as such but something advisers need to carefully factor this into the advice process. So what does this mean in practice?
Understanding what vulnerability looks like
Grasping the definition of vulnerability is the first step in understanding how to better manage it in clients. The FCA defines a vulnerable consumer as ‘someone who, due to their personal circumstances, is especially susceptible to detriment, particularly when a firm is not acting with appropriate levels of care’.
An example of this may be Robert and John. Both on paper are facing the same challenge, in that they need to pay their outstanding interest-only balance in the next month or so to keep their home. However, Robert has always planned to use equity release while the shares John invested in to cover the shortfall have underperformed and are worth far less than he paid. Two men facing similar circumstances but one arguably far more vulnerable than the other.
So the question becomes, having built an understanding of what vulnerability is, what should advisers be doing and how can this knowledge be consistently refreshed and expanded on?
What can help advisers identify a vulnerable client in 2023?
Arguably the first step is to take advantage of the educational support provided by industry bodies, lenders and sourcing platforms. Additionally, there are a range of professional training and online courses available which not only build understanding but provide access to experts to help advisers keep up to date with the latest thinking.
With this knowledge, advisers are in a stronger position to identify vulnerabilities and support customers. This can involve encouraging additional family involvement if appropriate, devoting more time to explaining concepts, involving a translator if English is not their first language or simply using soft skills to make customers feel comfortable. These practical steps can allow advisers to have honest, clear conversations with customers who need the additional support.
In more serious cases, advisers can seek professional support for the individual to better guide them towards financial stability. Larger networks and advice firms should also provide in-house support and access to experts who can support advisers as they navigate these challenges.
Ultimately any approach or support needs to be carefully personalised for the customer as there is little advantage to – for example - involving the family if they are coercing the older homeowner into accessing their housing equity for their benefit. There is also the need to be even more meticulous around recording communication, contact and why a specific outcome was recommended or decided upon. This is for your protection as well as theirs and something that the introduction of Consumer Duty will improve across the industry.
Finally, should the case proceed, speaking to the lender so they understand that the customer may need more support, information or understanding is important. No organisation wants to fail a vulnerable customer or face the challenge of a FOS complaint, so this type of information sharing is vital.
With 2023 underway, there are a significant number of factors which mean that more older customers could find that they qualify as vulnerable. However, the later life lending industry is on hand to support them with more education and understanding of this topic than ever before. We are all in this together and if we remember to focus on personalising our approach for the individual, we can achieve the right outcomes for customers.
