How prepared are we to deal with financial vulnerability?

Towards the end of last year, the FCA’s latest Financial Lives survey found that the number of adults with low financial resilience had leapt to 12.9 million – up from 10.7 million in 2020 – with the primary cause thought to be the number who were “heavily burdened by their domestic bills and credit commitments.” The Organisation for Economic Co-operation and Development reported that Britain was suffering the worst cost-of-living crunch of any G7 nation, while The Money and Pensions Service found that over a million Londoners had less than £100 in savings.

In short, 2022 saw a real increase in financial vulnerability, and with the cost-of-living crisis set to continue, we can expect another challenging year in 2023.

Consumer Duty, the FCA’s initiative to ensure better outcomes for vulnerable customers, will be a significant help to those who are at risk. Last summer, firms were given a year to implement the required changes. However, to reduce the chance of a last-minute rush, they were also instructed to create an action plan by the end of October. You would expect, therefore, that as we neared the end of 2022, the majority would be in a strong position to support vulnerable customers. In reality, the readiness of firms was more varied.

Shortly before the October deadline, research carried out by MoneyHub revealed that only 22% of firms thought they were compliant with the upcoming regulations. A further 56% claimed to have no initiatives underway to become compliant.

Fast-forward a few months and a new review by the FCA has raised fresh concerns about the progress of implementation, with some firms still so far behind that they could struggle to comply once the rules come into force. The review states that some "may have considered the requirements superficially or are over-confident that their existing policies and processes will be adequate".

Disappointing as it might seem for some firms to be in this position, it isn’t altogether surprising. Through our own work at Comentis, we see a number of advisers only checking for vulnerability when they already believe something might be wrong, as opposed to carrying out individual assessments at every active service point. This has to change, and it has to do so within the next six months, if firms plan to comply with Consumer Duty. An adviser simply cannot assess whether a vulnerable person has had a good outcome if they don’t know that the person they’re dealing with is vulnerable. They must be equipped to identify vulnerability – and to do so at every stage of the process.

What can we expect between now and July?

Help is available for those that are struggling. The FCA has been regularly publishing information for those just getting started, and updating this in response to questions from the community. Elsewhere, various firms and industry bodies have been publishing their own support guides to help advisers get their plans on track.

But training alone won’t be enough. Neither will manually monitoring for potential vulnerabilities. Vulnerability is the foundation on which the Consumer Duty pillars are built, those being product and service, fair pricing, customer support and customer understanding. It’s no good reverse-engineering it into these four areas. Instead, identifying and supporting vulnerable customers has to be as systematic as it is consistent. And for that to be achieved, a third-party specialist platform is the most sure-fire solution.

Digital assessment tools exist that can help to identify at-risk customers and get the right systems in place, removing subjectivity from the process and ensuring consistency across a whole client base. There’s a case to be made that these kinds of solutions are the only way to ensure all vulnerability drivers are in scope. By combining clinical expertise with hard data, they can provide reassurance that a firm’s systems and controls will adequately meet the scrutiny of regulatory requirements.

In the long run, this is a process that will benefit everyone; clients and firms alike. If you’re struggling to begin your implementation journey, or if you know that you need to bring in additional expertise, don’t delay.