With nearly half of UK adults living with one or more characteristics of vulnerability, advisers are on the front line of identifying and supporting clients whose challenges compound in unseen ways. In this, his latest update for IFA Magazine, Andrew Gething managing director of MorganAsh, explains why recognising multiple vulnerabilities, and using smarter tools to do it, is now essential to delivering good outcomes under Consumer Duty.
When we talk about customer vulnerability, there is always the risk that the conversation is too simplistic or one dimensional. That could mean thinking about vulnerability is a binary way (someone ‘is’ or ‘isn’t’, without nuance), or in a static way (that vulnerabilities don’t come and go or change over time). It’s common for conversations to focus on just one vulnerability or characteristic, often equating that term with either illness or disability – when there are so many other factors to consider, such as financial, emotional or situational vulnerability.
The reality is that many customers experience more than one vulnerability at a time. In fact, the most recent Financial Lives survey from the FCA found that 49% of UK adults live with one or more characteristic of vulnerability. These challenges can be more than the sum of their parts, – it’s often not a case of 1+1=2. The result of the sum depends on many factors, such as the severity of the vulnerability. An example might be someone who has lost their job, but then loses their house.
Even a mild health issue (that would usually have little impact in isolation), if this happens alongside an extreme life event such as a bereavement or divorce, it can have much more significant impact on a person’s resilience – and require intervention. Thinking in terms of single issues doesn’t reflect reality and can often be a customer vulnerability blind spot.
A greater than compound effect
Separate research by the FCA earlier this year underlined the scale of this issue. It highlighted the multiplicative effects of additional vulnerabilities and the fact that customers in these situations suffer disproportionately more than those with single or isolated issues – whether that’s health, financial or lifestyle. It serves as a reminder to firms to recognise and consider these disproportionate effects – both in how they support their customers and in how they monitor outcomes under Consumer Duty.
The challenge has long been that most approaches to managing vulnerability fail to recognise this and simply apply another separate, single support need to each additional vulnerability.
It’s one thing to understand this when speaking directly to the customer. An adviser or an agent may well be able to identify when several factors are intersecting to make a customer more vulnerable. But it’s quite another challenge to identify and manage these complex, overlapping issues at scale, as part of a digital journey, and then represent this in management information and reporting.
With technology still proving to be the most accurate, efficient and cost-effective way to manage customer vulnerability, and meet the requirements of Consumer Duty, it quickly becomes clear that firms need tools that do recognise multiple vulnerabilities, their disproportional effect and then the ability to translate this into a single metric with actionable insights that can also be reported on.
Reflecting reality
Humans are inherently good at recognising multiple issues and the effect this has on individuals. Replicating this digitally is far more challenging. At MorganAsh, our team has been working diligently in the background for months to model the algorithms behind the MorganAsh Resilience System (MARS) to better match this reality – confirming our algorithms and refining them against real data.
The approach is based around a proven categorisation hierarchy, which itemises each individual circumstance – collated into categories of health, wealth, lifestyle, financial capability, engagement capability and support network.
Each circumstance itself is assigned a severity weighting, to reflect the impact on the customer. Support needs can be triggered from the individual circumstance – for example, hearing loss might trigger a communications support need. A mild health issue or individual circumstance may not trigger any need for support – unless combined with another characteristic or life event.
MARS collates all this information and then generates a single Resilience Rating – which is best described as being similar to a credit score, but for vulnerability. The end result for firms is not just an objective measure of a client’s vulnerability, but a holistic view of their customers and one that far better reflects reality.
Improving outcomes
With a greater understanding of our clients and their circumstances, we are in a far stronger position to improve and personalise our products and service, make any necessary adjustments and offer relevant, timely support. There’s no question that this is a real competitive advantage and those firms that been proactive in embedding Consumer Duty are already realising these benefits.
Improving customer outcomes without increasing operating costs requires smart, scalable technology and robust processes. This means moving away from a simplistic, one-dimensional approach, to objective and holistic vulnerability assessment and management, built on a more sophisticated understanding of a customer’s complete circumstances.
