MorganAsh comments on FCA's review of vulnerability
18 March 2024
Following the announcement by the FCA that it will review firms’ treatment of vulnerable customers, we have a comment from vulnerability and Consumer Duty specialists MorganAsh.
MorganAsh provides the award-winning MorganAsh Resilience System (MARS) to enable brokers, advisers and financial services firms to better manage and evaluate consumer vulnerability and comply with Consumer Duty.
Andrew Gething, managing director of MorganAsh, said: “It is no surprise that the FCA has announced its plans for a review of how firms are managing customer vulnerability. The vulnerability guidance FG21/1 came in three years ago – although Consumer Duty FG22/5 gave it great impetus in July 2023.
“A simple check firms can undertake themselves is the number of vulnerable customers they have recorded. A recent FCA survey revealed that 49% of portfolio managers and 69% of stockbrokers reported they had zero vulnerable customers – which should be a big red flag. Since we know around 50% of consumers are vulnerable at any one time, and we are all vulnerable at some time in our lives, having zero vulnerable customers is incredibly improbable.
“Many firms are still reporting the number of vulnerable customers in the single figures – so they are also falling well short. Some common errors include only being reactive to consumers volunteering information when the consumer contacts the firm, thus only assessing a subset of customers – firms need to be proactive and attempt to assess all customers. Also, relying on consumers to volunteer information, when they need to be asking questions of the consumers, or obtaining the data from elsewhere – and only assessing financial vulnerability, while ignoring health and lifestyle issues, as this is the only data that can be provided by data providers. Plus, relying on agent/adviser assessments which generally underreport, and thinking that if they have overcome the vulnerability, then they don’t need to record it. Finally, only recording when they make an adjustment and ignoring the milder vulnerabilities which don‘t have an impact on the immediate process.
“As part of Consumer Duty, firms need to report in July on outcomes and the comparison of the vulnerable cohorts (bereaved, divorced, cancer, debt etc) compared to the resilient. It is becoming obvious that few firms can actually do this, as they don’t have the data. As a result, firms should look to start the process so they can show evidence and plans to comply. Alongside good quality data, firms must have necessary technology to provide a proactive and objective way to assess consumer vulnerability. With the right processes in place, compliance can start to feel like a competitive advantage, providing firms with a greater level of intelligence which will strengthen client relationships and deliver a level of service which is far better suited to their needs.
“A wider challenge is the lack of monitoring over the lifetime of the product – which often requires some form of cooperation between manufacturer and broker. Some have questioned whether the responsibility falls on the intermediary or the manufacturer. As far as Consumer Duty is concerned, it doesn’t matter who undertakes the monitoring, just so long as it happens.”
