Expert believes assessments must be made on an individual basis
With interests rates rising and mortgage payments doubling in some cases, even homeowners who might appear far from financially vulnerable could face some challenges.
Richard Farr (pictured), non-executive director at Comentis, said the reality is that anyone can be vulnerable, at virtually any time. “For instance, a change in circumstance, whether it be a divorce, a new baby, an illness or a bereavement, could easily leave someone at risk from vulnerability,” he said.
As such, Farr said that mortgage advisers will need to be aware of the many different circumstances that could make their customers vulnerable, and assess them properly for any signs of vulnerability.
Consumer Duty obligations
With the obligations posed by Consumer Duty, Farr said the Financial Conduct Authority (FCA) has mandated that firms need to understand vulnerabilities in their target markets, and respond to those needs with their services, products and advice.
However, he believes the problem with this approach is that target markets can be a misnomer.
“After all, sorting people into groups based on their circumstances, and claiming that they are vulnerable in a particular way because they fit into a certain category, will not allow an adviser to conduct an accurate assessment,” Farr claimed.
Farr said the industry needs advisers to be thinking about vulnerability on an individual level, with target markets used as a starting point to help gauge what vulnerabilities an individual might be at risk of.
“Advisers will need to conduct individual assessments and focus on individual circumstances,” he said. In turn, Farr said this will require a change of attitude in the sector, which he added will certainly not happen overnight.
Good outcomes for all
“Of course, we do not want to talk people out of getting a mortgage, nor do we want to turn advisers into social workers,” Farr said.
Consumer Duty, he believes, is simply about making sure a particular outcome is actually going to be good for the end-customer.
“Advisers now have to make sure everything’s documented and that they have correctly assessed whether a customer is in a vulnerable situation; if they do not check, advise and assess, it is going to cause problems down the line,” Farr said.
While Farr believes that advisers are fantastic at what they do, he said the market must be realistic and acknowledge they cannot do everything.
Identifying and supporting vulnerable customers, Farr said, has to be as systematic as it is consistent.
“For that to be achieved, a third-party specialist platform is the obvious route, a technology-driven assessment tool that can help in identifying financially vulnerable customers, removing subjectivity from the process and ensuring consistency,” he added.
By combining clinical expertise with hard data, Farr said these kinds of solutions are able to reassure firms that their systems and controls will adequately meet the scrutiny of regulatory requirements.
Long term view
The Consumer Duty deadline, Farr said, should be seen by advisers as the firing of a starting pistol, marking the beginning of a broader conversation, and understanding on vulnerability.
“While some might have been looking forward to putting Consumer Duty behind them this summer, the reality is that the topic of vulnerability is here to stay,” he said. Over time, as the market develops its understanding, Farr said the outcomes it delivers for vulnerable customers will start to gradually improve.
However, he added that advisers should not expect an overnight transformation, and, in all likelihood, he believes the market will be in escalation for years.
“Consumer Duty is about continuous improvement; the goal should be for advisers to look at the measures they have put in place so far and ask how they can go a step further to ensure good outcomes for their clients,” he said.
Do you believe there will be a rise in vulnerability assessments in light of Consumer Duty? Let us know in the comment section below.