The Financial Conduct Authority’s plans for an investigation into how firms handle customer vulnerability comes as no surprise, says Andrew Gething, managing director of MorganAsh.
Gething’s comments come after the FCA’s announcement last week, which outlined five characteristics of a good Consumer Duty report and five areas for improvement.
The report is the result of a targeted and thematic review that the regulator conducted on the first annual Consumer Duty governance reports of 180 companies.
As part of the rules, companies must prepare a report for their governing body setting out the results of monitoring consumer outcomes, as well as any actions required as a result of the monitoring.
Gething says: “A simple check that companies can do themselves is the number of vulnerable customers they have registered.”
“A recent FCA survey found that 49% of portfolio managers and 69% of stockbrokers said they had no vulnerable clients – which should be a big red flag.”
“Given that we know that around 50% of consumers are vulnerable at some point, and we are all vulnerable at some point in our lives, it is incredibly unlikely that there are no vulnerable customers.”
The financial regulator says five characteristics of a good report are a clear focus on results, good quality data, analysis of different types of customers, clear processes for producing the report and a focus on culture across the company.
Meanwhile, the FCA proposes areas for improvement that focus on better data quality, a comprehensive overview of distribution chains, an analysis of different customer types, governance challenges and taking effective action.
Gething says: “Many companies are still reporting the number of vulnerable customers in the individual figures – so they too are falling well short. Some common mistakes include only being reactive to consumers volunteering information when the consumer contacts the company, thus only assessing a subset of customers – companies should be proactive and try to assess all customers.
“Also, relying on consumers to volunteer information when they need to ask consumers questions, or obtain the data from elsewhere – and only assess financial vulnerability, while ignoring health and lifestyle issues as these are the only data that can be provided by data providers.”
“Plus, relying on the assessments of agents/advisors who generally under-report, thinking that if they have overcome the vulnerability, they don’t need to record it. Finally, only include if they make an adjustment and ignore the milder vulnerabilities that have no impact on the direct process.”
“As part of the Consumer Duty, companies must report in July on the results and comparison of the vulnerable cohorts (bereaved, divorced, cancer, debt etc.) compared to the resilient. It’s becoming clear that few companies can actually do this because they don’t have the data.”
“As a result, companies should look to start the process so they can show evidence and have plans in place to comply. In addition to good quality data, companies must have the necessary technology to provide a proactive and objective way to assess consumer vulnerability.”
“With the right processes in place, compliance can feel like a competitive advantage, giving companies a higher level of intelligence, strengthening customer relationships and providing a level of service that is much more suited to their needs.
Gething notes that a broader problem is the lack of monitoring over the life of the product, which he says often “requires some form of collaboration between manufacturer and broker.”
He states: “Some have questioned whether the responsibility lies with the intermediary or with the manufacturer. As far as consumer rights are concerned, it doesn’t matter who does the checking, as long as it happens.”