Towards the end of last year, December 2024, The Financial Conduct Authority (FCA) set out its focus for its Consumer Duty scheme of work over 2025.
There were some generic mentions of where they were going to focus on the treatment of vulnerable customers, however one striking mention singled out the wealth management sector in particular – specifically calling out this sector’s poor identification rate of vulnerable clients.
Effective compliance in wealth management hinges on a robust framework of detailed and accurate data collection, as well as a commitment to transparency and accountability by the whole industry.
Here at The Association of Professional Compliance Consultants (APCC) we have long emphasised the importance of a customer-centric approach in the financial services sector. Firms must not only comply with their regulatory requirements, but also actively foster trust and demonstrate value to their customers. A core component of this is addressing the needs of vulnerable individuals, who may be at greater risk of experiencing harm or poor financial outcomes.
So why does identifying vulnerable customers matter?
As most of us now know, the FCA defines vulnerability as a spectrum of risk factors, including health issues, life events, resilience, and capability.
Customers with these vulnerabilities may struggle to understand complex financial products, make informed decisions, or access support when needed. Wealth management firms, therefore, play a pivotal role in safeguarding these individuals from potential financial harm.
But, as we also now know, identifying vulnerability is not a one-size-fits-all process. It is complex and very nuanced. Because of this, firms must adopt a tailored approach that considers the unique circumstances of each of their customers and accurately assesses what each customer might be vulnerable to. Whilst, to some extent, this involves training staff to encourage open communication and signposting in the right direction, the only consistent way is to get identification right in the first place and leveraging technology to flag any
potential risks. By doing so, firms can proactively address customers’ needs and ensure fair treatment for everyone.
It matters because if the initial identification is flawed from the offset, then all other aspects in demonstrating good outcomes for vulnerable customers will be equally flawed when they are scrutinised.
Data is key to this. Once the effective identification of vulnerable circumstances is in place, under the Consumer Duty all firms are required to evidence that their products and services deliver good outcomes across their whole customer base. For vulnerable customers, this means demonstrating that tailored support measures are effective and that these individuals are not exposed to anything other than the good outcomes experienced by the rest of the client base.
Accurate and detailed data collection is crucial in achieving this. Wealth management firms should then establish processes for capturing customer interactions, documenting identified vulnerabilities, and tracking outcomes over time. This data not only supports regulatory compliance, but also enables firms to evaluate and improve their practices too.
For example, firms might use their customer data to:
· Identify trends in vulnerable customer behaviour;
· Assess the effectiveness of tailored interventions;
· Ensure that communication strategies are accessible and inclusive.
The FCA’s guidance highlights the importance of monitoring outcomes through clear and measurable indicators. Firms should routinely analyse this data to identify areas for improvement and take corrective action where necessary.
Over the last few years, we have seen a disjoint between the three main groups that need to tackle the issue of customer vulnerability, namely the board, the advocates leading the vulnerability working groups or indeed those who are championing the issue and the more operational customer facing staff themselves. But if treating all clients equally is to become a fundamental part of a business, and if a board is going to be able to make informed decisions on customer who have additional needs, then all three of these parties need to work more closely together and sing from the same hymn sheet. Not only this, but they will also need to embed cultural change from both the bottom up and indeed the top down around this now mandatory topic so that everyone understands it’s significance.
What cannot be disputed is that we need to build a culture of accountability. Ultimately, compliance under the Consumer Duty requires a cultural shift within all firms. It is simply not enough to implement processes; firms must foster an ethos of accountability and empathy.
Leaders within wealth management must champion the importance of addressing good outcomes for all , ensuring that it remains a priority across all levels of the organisation.
To this end, firms should consider engaging with verified external compliance professionals to ensure best practice and evaluate third party identification tools that work in concert with the customer journeys. Complimenting this should be comprehensive training for all staff on communicating with and supporting vulnerable customers and regularly review policies and procedures to align with evolving regulatory expectations.
The FCA’s Consumer Duty is a watershed. It compels the financial services sector’s responsibility to deliver good outcomes for all customers, particularly the vulnerable. Wealth management firms must rise to the challenge by embedding systematic identification processes, leveraging accurate data, and fostering a culture of care and accountability. If they don’t the risks to both themselves and their clients are substantial.
By prioritising the needs of vulnerable customers, firms not only achieve compliance, but also build lasting trust and loyalty among their client base. In partnership with compliance professionals, the industry can ensure that no customer is left behind in their financial journey and that culture change in the wealth management sector can take the required shift for the better.
By Richard Farr, Working Group Chair at The Association of Professional Compliance Consultants (APCC)
