The FCA published a review this morning on how firms are designing, monitoring and distributing products under Consumer Duty.
One particular finding is notable: that several firms have got better at identifying vulnerable customers, but not at adapting products once needs are identified – a gap the FCA calls out explicitly.
Greg B Davies, Head of Behavioural Finance at Oxford Risk, has a comment on why this happens saying:
“A vulnerability flag is not a treatment plan. The FCA’s review exposes the risk that firms become increasingly sophisticated at identifying vulnerable customers, while remaining unable to say what should change as a result.
“Identifying vulnerability tells a firm that additional care may be needed. It does not, on its own, explain how someone is likely to experience a particular product, communication or financial decision. That requires a more granular understanding of the customer, including their financial personality as well as their circumstances and capability.
“Behavioural characteristics such as confidence, composure, risk tolerance and desire for guidance can make even financially secure and knowledgeable customers vulnerable to expensive behavioural responses. Poorer circumstances or lower capability may exacerbate that vulnerability, but they do not define it.
“These differences should shape product design, target markets, communications and support, and firms should then test whether those adaptations actually improve outcomes. Otherwise, vulnerability risks becoming another compliance label: carefully recorded, regularly reported and operationally useless.”
