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Consumer Duty and the crucial role advisers will have to play – MorganAsh

by: Helen Lord, CEO of the Vulnerability Registration Service, and Andrew Gething, managing director at MorganAsh
  • 20/07/2022
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Despite the Financial Conduct Authority (FCA) first flagging the need to protect vulnerable customers from further harm back in 2015, two in five vulnerable people are still being treated unfairly.

 

Vulnerability regulations are already in force, but the Consumer Duty is a game changer. It changes the way regulations are implemented, by requiring advisers and providers to demonstrate they are treating vulnerable customers appropriately, rather than the FCA having to prove non-compliance. 

There are rumours that the April 2023 deadline for Consumer Duty implementation may be delayed by six months – but either way there is still much to be done to ensure compliance, and it applies to both providers and advisers. They’ll have to assess every step in the customer journey, identify practices that ‘exploit behavioural biases and vulnerabilities’, understand potential for harm and provide evidence of it all – this final point is key. 

 

Impact on advisers 

Some believe the impact on advisers will be minimal, reassured by the fact that they’ve been doing much of what’s expected for years. They talk to each customer, understand their needs and adapt their services and recommendations. They carry out financial fact finds and regular customer reviews.  

What’s missing, however, is the robust evidence to go with it. Such assessments are informal and subjective. Information isn’t collated. Where it is collated, it isn’t objective, or consistent. This is because vulnerability is not simple. The ‘characteristics’ that make a person vulnerable in certain circumstances can be temporary or permanent, as well as range from mild to severe. Such characteristics can be anything from dyslexia and hearing impairments, to bereavement or gambling issues. One adviser may believe a customer is vulnerable. Another may not.  

The recent ‘Dear CEO’ letter and complimentary missive ‘ensuring the fair treatment of customers in vulnerable circumstances’ reinforced FCA expectations of advisers to provide detailed records and management information of what they’ve done, how vulnerability was assessed, decisions made together with recommended actions. They also expect outcomes of interactions with customers to be monitored. A financial fact find will not be enough.  

If changes aren’t implemented now, it will prove a significant problem for the adviser community.  

  

What should they do? 

  1. A powerful, but simple first step to proving due diligence is using resources like the Vulnerability Registration Service that can identify who is vulnerable right now. 
  2. Those undertaking annual customer reviews should incorporate questions that indicate characteristics of vulnerability.
  3. Removing subjectivity and inconsistency from assessments and documentation at each stage of engagement will be crucial to meeting Consumer Duty requirements. Tools will enable, simple, consistent assessments, understanding, rating and tracking of characteristics of vulnerability.

These changes will be a leap for most advisers, but the status quo won’t stand the test of time. 

Advisers are in a unique position. Their ongoing customer relationships mean they can uncover vital information on characteristics that make customers susceptible to harm. This knowledge will enable them to adjust how they communicate essential information and what they recommend e.g. avoiding high risk investments where there’s a history of gambling.  

The key, however, will be to adopt a consistent way to objectively record each consumer. 

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