Expert discusses the accessibility of vulnerability data and best practices
Many firms implementing Consumer Duty seem to be struggling with the need to evidence the vulnerability of their customers.
Vulnerability guidance from February 2021 encouraged training staff at the front end, but Consumer Duty added on three major enhancements:
Firstly, the need to proactively assess all customers, secondly, to evidence vulnerability to directors and thirdly, the need to monitor consumer vulnerability over the lifetime of the product. That evidence is itself required for fair-value and target-market evaluations. So, from where can you get this data?
Andrew Gething, managing director of MorganAsh, said in an ideal world, there would be a rich source of data from an organisation like a credit agency.
Gething (pictured), said this could then inform whether a customer was vulnerable, but no such convenient data source existed.
“True, there is socioeconomic data which can suggest the propensity of an individual to be vulnerable based on factors such as market value of houses and local employment rates, but since these operate at postcode level their value is sorely limited,” he said.
Gething added that the reality was there could only be one source of data, which was from consumers themselves. He believed the challenge was how to acquire this.
Many companies collected some data when consumers initially contacted them, be it for a complaint or a claim.
“Indeed, this is a good and pretty logical place to start as there is likely to be a high proportion of vulnerable consumers within this cohort, but it does not go anywhere near far enough, it is still just a subset of a firm’s customers,” Gething said.
The deadline of July, 31, 2023 for which firms must understand the vulnerabilities of all customers is drawing closer.
Gething pointed out that in the Financial Conduct Authority’s (FCA) Financial Lives Survey, around 50% of people fell into the vulnerability category.
He believed the best approach to understanding the vulnerabilities of customers was through a process which assessed each customer.
“Most holistic advisers do this when they undertake annual reviews, most brokers when mortgages are up for renewal; both are unlikely to get all customers evaluated by the July 2023 deadline,” he said.
However, Gething believed this was both a practical and pragmatic solution that, in his view, would be accepted by the FCA.
Moving forward, Gething believed advisers should consider assessing consumers individually, implementing an online process similar to risk assessments and attitude-to-loss assessments, or to utilise third party systems to undertake assessments.
“These are all viable options and there is no single answer to this; each firm will need to adopt its own approach, depending on cost and how they interact with consumers,” he said.
Objectively, Gething said by far the most efficient method was to use an online questionnaire, as such tools already existed and when integrated within CRM systems, he said the process could be mostly automated, minimising the administrative overhead.
“By comparison, the personal method, for the adviser to talk with consumers, was likely to be time consuming and only suitable for some,” he said. Gething added that this method would still be needed as a fall-back, even within automated workflows.
Older consumers might well not be digitally literate or they may be reluctant to provide the information online.
As such, Gething believed there would always need to be the back-stop of the broker completing a review, either face-to-face or over the phone.
“Many within financial services consider questions on health and lifestyle to be intrusive, but this is only due to us not being used to engaging with consumers in this way discussing health issues,” Gething said.
A 2019 study of 2,000 UK adults by The Debt Advisor revealed that consumers actually found it easier to discuss mental health and infertility than money, with 25% of respondents believing conversations about personal finances to be a no-go as it made them feel ‘anxious’ and ‘nervous’.
“It would seem that in conversations centred around financial matters, discussing vulnerabilities will not be the hardest part of discussions,” Gething said.
Like any interaction with consumers, there was a ‘value exchange’ of information, he said. Gething reasoned that once consumers understood that they were likely to receive a better service, and one tailored to their personal circumstances, they would almost certainly be happier divulging such information, because doing so was good for them.
“This has to be an important area of focus, using vulnerability data to deliver better services; it is also, of course, good for firms as it meets the FCA’s Consumer Duty requirements,” Gething said.
How are you expecting firms to adapt to the FCA’s Consumer Duty once it comes into force? Let us know in the comments below.