The Financial Conduct Authority’s plans for a review of how firms are managing customer vulnerability come as “no surprise”, says MorganAsh managing director Andrew Gething.
Gething’s comments come after the FCA announcement last week outlining five features of a good Consumer Duty report and five areas for improvement.
The report comes as a result of a targeted and thematic review that the regulator carried out on the first annual Consumer Duty board reports from 180 firms.
As part of the rules, firms must prepare a report for its governing body setting out the results of its monitoring of consumer outcomes and any actions required as a result of the monitoring.
Gething says: “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.”
The financial regulator says five features of a good report include clear outcomes focus, good quality data, analysis of different customer types, clear processes for production of the report and a focus on culture throughout the firm.
Meanwhile, the FCA suggests areas for improvement focus on better data quality, a comprehensive view across distribution chains, an analysis of different customer types, challenge from the board and taking effective action.
Gething states: “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.
Gething notes that a wider challenge is the lack of monitoring over the lifetime of the product, which he says often “requires some form of cooperation between manufacturer and broker”.
He states: “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.”
