Paul Roberts: How to treat vulnerable customers

'Failing to address protection adds clients' vulnerability'

Paul Roberts, head of protection, Old Mutual Wealth
Paul Roberts, head of protection, Old Mutual Wealth
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Old Mutual Wealth's head of protection talks us through what he learnt from a recent string of seminars

Whether it is the providers who deal on a daily basis with vulnerable claimants or financial planners who are advising clients to take out protection to mitigate becoming vulnerable in the future, the protection industry has and always will be on the frontline of dealing with vulnerable customers.

With two FCA occasional papers on vulnerable customers already issued and a consultation paper due imminently, processes for identifying and dealing with vulnerable customers are expected to become a regulatory requirement for providers and planners in the not too distant future.

If financial planners fail to broach the topic of protection with their clients they can inadvertently add to a client's future vulnerability as it can lead to a client to ‘self-insuring', meaning that they dip into their savings or pension later in life in order to pay for all the costs associated with a critical illness such as hospital bills, travel to and from treatment and a lack of earnings due to not being able to work. This as a consequence leaves the client financially exposed and even more vulnerable.

For this reason, I and the rest of the team embarked on a 16 date national seminar tour talking to over 600 financial planners on topics ranging from, how to be compliant with the regulations, to how to treat vulnerable customers. We realised throughout the tour the same four questions kept cropping up and below our answers:

Does everyone in my business need to know about this?

The short answer to this is yes. The work on vulnerability has been compared to the work done by the FCA in 2015 surrounding treating customers fairly (TCF). This is a fair analogy to make as similarly everyone in any business must have knowledge of the key principles, and most importantly, how they apply to their own role in a client's journey and experience. Whether its providers, financial planners or back office staff, everyone must be up to speed with how to deal with customers of this type.

Does the broad scope of the FCA definition mean that all of my clients are vulnerable?

The FCA definition is deliberately inclusive of different types of detriment, and should encourage identification of vulnerable circumstances that are temporary as well as permanent. The key is to spot potentially vulnerable circumstances but then to ascertain whether an individual client is in fact vulnerable, and if so, what their needs are. We believe it is important not to make assumptions that someone is automatically vulnerable because of their circumstances but to listen to each client as an individual.

Saying this, vulnerability can come in a variety of different forms and it can be equally likely that someone may not seem vulnerable but in fact is.

For example, around one in four people will experience domestic abuse in their lifetime which could lead them to be vulnerable and only through supporting a client to open up about their experiences can a financial planner get a full and accurate picture of someone's life.

For financial planners, it's important they understand that simply a client's resilience, or lack thereof, to bearing a financial loss could create vulnerability. The FCA's Financial Lives survey found that more than a third of UK adults would not be able to cope if they lost their main source of income illustrating how frequently a planner might come across this type of client.

Another often overlooked area which can lead to vulnerability is simply not being financially literate or experienced in these types of matters. This can mean that someone is vulnerable while making decisions because regardless of their intelligence they have not fully understood the ramifications of it.

Is vulnerability something I need to document as part of fact finds?

The FCA guidance does not, at present, set out requirements at such a low level. However, it does expect firms to record a vulnerable client's needs so that the firm can act on these as appropriate, and so that a client only has to tell you once, as just the process of speaking about vulnerability can be a difficult step to take. Naturally, in the current regulatory environment it is very important to consider GDPR and the treatment of special category data which much of the information about vulnerabilities will fall into. 

We haven't started this work at my firm, where do we start?

There are four steps set out in the FCA's practitioner's pack that give guidance on how to approach this. This first step to take is to audit your firm's current practice such as looking at your relevant processes or communications. It is then important to develop a strategy to fix or improve any weaknesses uncovered during the first step. Naturally, it's then important to start putting this into action and embed the new processes that improve the customer journey for someone who could be vulnerable. Finally, it then is important to evaluate how successful this is and continually maintain and improve the way you support vulnerable customers.

Vulnerability is not a topic which is set to go away as people are living longer lives but often spent in ill-health. It's therefore critical that a planner explores the differing levels of flexibility of various protection products so that if a client's life changes in the future they can increase cover without further underwriting or medical evidence to help them avoid becoming vulnerable down the line.

It is also imperative for planners to act from a regulatory perspective and financial planners need to take heed of the increasing focus on how to treat vulnerable customers. But most of all it is, of course, important from a moral standpoint. Vulnerability can happen to anyone at any time and I'd like to work in an area of financial services that recognises this and endeavours to do its best to help those in need.

Paul Roberts is head of protection for Old Mutual Wealth

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