Customer vulnerability is like any journey. Set off with the wrong destination in mind and that’s where you’ll end up – the wrong place.
Many firms succumb to the same pitfalls when setting out on their customer vulnerability journey – and then find they are adrift in terms of outcomes, customer support, reporting and compliance.
With the FCA announcing the findings of its vulnerability review, we look at the ten most common pitfalls.
1. Some firms assume or believe customer vulnerability is all about (or mostly about) financial vulnerability; some even say that their clients are too wealthy to be vulnerable. Customer vulnerability characteristics also include things like health and lifestyle. Wealth isn’t a shield against many vulnerabilities.
2. Some firms think that vulnerability is binary – a yes or no – when there is a range of severities and impacts. Someone isn’t just vulnerable or not, in the same way that people aren’t rich or poor, or sighted and blind.
3. Some firms wait for consumers to inform them of any vulnerabilities, when the FCA has said that firms should actively engage with all customers. People are unlikely to proactively disclose such information, sometimes because they worry it will be used against them, sometimes because they don’t see themselves as being vulnerable and often because they aren’t aware of Consumer Duty.
4. Some firms restrict vulnerable customer processes to those involving human interaction or phone calls – ignoring digital and other forms of consumer interaction. All forms of interaction should be included.
5. Some firms identify and mitigate customers’ vulnerabilities but fail to evidence having done this. This could be because such work is undertaken informally; it could be because there isn’t a structured way to report such interactions – and therefore no way to report on them.
6. Some firms place most of their focus on training front-line staff, expecting them to both be able to identify all vulnerabilities, and remember the multitude of ways their firm can mitigate issues – and expect this to happen without any system support. This places what are quite detailed and specialist tasks into the hands of staff who are already busy performing their core roles, expecting the overhead to be ‘absorbed’. Results from this approach have been shown to be poor.
7. Some firms rely on and accept individual subjective customer vulnerability assessments, despite evidence which shows that lack of awareness, training, professional empathy or having conscious or subconscious bias can skew results, making them inconsistent and possibly opening the firm up to legal action. Firms fail to introduce an objective methodology of communicating the wide variations in impact of each vulnerability characteristic, resulting in poor, inconsistent data that cannot be understood by others.
8. Some firms fail to consider the FCA’s requirement for ongoing monitoring and the need to record customers’ vulnerability characteristics over time, especially over a product’s lifetime.
9. Some firms fail to consider how to communicate customer vulnerability characteristics between intermediary and manufacturer – they may be doing it inadequately, doing it inconsistently or assuming the other is doing it – and therefore not doing it at all.
10. Some firms fail to consider how customer vulnerability data can be collated and compared to outcome data – to enable reporting on vulnerable cohorts.
A straightforward and simple shift in mindset on these basic principles can have a massive, material impact on a firm’s Consumer Duty compliance and the success of its vulnerable customer strategy.
