Consumer duty: coming to a fact find near you

June 9, 2022

Transparency of Information

This is one of the most important issues within consumer duty. Within the investment world, the Sustainable Finance Directive Regulation (SFDR) has introduced greater need for fund managers and providers to be clearer about the contents of their funds and products. This mainly related to the sustainable finance content of their funds. This is very important to advisers as the advisers are entirely reliant on information provided by the fund managers and providers. Most advisers will not have the time or access to sufficient information to confirm whether their original recommendation still remains accurate as far as the sustainable credentials go.

Vulnerable Clients

There is also greater emphasis on dealing with vulnerable clients. This is far more nuanced than most advisers understand. Some advisers just seem to think that vulnerable clients are older people. However, I think that most advisers have met 85-year-old ladies who are far-better informed than they are and any thoughts of vulnerability would be insulting and patronising.

The FCA definition of vulnerability refers to customers who, due to their personal circumstances, are especially susceptible to harm, particularly when a firm is not acting with appropriate levels of care. Firms should therefore think about vulnerability as a spectrum of risk.

All customers are at risk of becoming vulnerable and this risk is increased by characteristics of vulnerability related to 4 key drivers as follows:

Health – health conditions or illnesses that affect ability to carry out day-to-day tasks.
Life events – life events such as bereavement, job loss or relationship breakdown.
Resilience – low ability to withstand financial or emotional shocks.
Capability – low knowledge of financial matters or low confidence in managing money (financial capability). Low capability in other relevant areas such as literacy, or digital skills. To achieve good outcomes for vulnerable customers, firms should therefore take action to:
understand the needs of their target market/customer base
make sure staff have the right skills and capability to recognise and respond to the needs of vulnerable customers
respond to customer needs throughout product design, flexible customer service provision and communications
monitor and assess whether they are meeting and responding to the needs of customers with characteristics of vulnerability, and make improvements where this is not happening.

The list of vulnerabilities is very long and growing as time goes by. It is now including mental health, stress, and more consideration of personal circumstances, such as bereavement, change of jobs and now insecurity and possibly the onset of personal poverty. The consideration of experience is also necessary. It could be that when it comes to the world of finance, the clients have no experience or perhaps have had poor experiences in the past. These issues need to be discovered at the outset of the advice process as that should govern how the adviser treats the client for the remainder of the relationship. It is that identification of vulnerability and then what the adviser has done to accommodate that vulnerability in their behaviour to the client which is key.

So, in order to comply with the new consumer duties, as part of their fact find process, advisers will need to:

identify any vulnerabilities
ascertain clients’ social and moral compass to discuss sustainable investment
establish the client’s attitude to investment risk and capacity for loss.

That’s all to be done in addition to discovering and considering the client circumstances, their objectives and how to achieve those. As one adviser said to me yesterday “I will not cover all that in 45 minutes”. No, you will not.

The FCA has the ambition that consumers will be less vulnerable when they leave a meeting with an adviser than when they walked in or joined the Zoom/Teams Meeting. Their chances of getting a good outcome should be increased.

Is that so much to ask?