In the Spotlight with Andrew Gething, MorganAsh

FR: We have heard a lot recently about how firms are supposed to deal with vulnerable customers. What’s driving this debate?

It’s all part of the Financial Conduct Authority’s (FCA) Consumer Duty regime. And that is all about delivering good outcomes, so the way in which firms deal with vulnerable customers is an integral part of that. The FCA clearly sees it as crucial – vulnerability is mentioned more than 100 times in the Consumer Duty regulation.

At the end of July, the FCA announced a revised timetable for implementation, meaning that firms will now have a little more time to introduce the new requirements. For new and existing products and services, it applies from the end of July next year. And for closed products and services, the new regime comes into effect at the end of July 2024.

But the timetable is still tight. The FCA said firms have to have a plan in place for the new requirements by the end of October this year.

FR: What makes a customer vulnerable?

Customers are not vulnerable; indeed, I don’t like the term vulnerable customers. We all have characteristics, and, in some circumstances, this may lead to vulnerability. The industry has the capability to assess financial capacity, in a way that is objective, can be recorded, and is consistent and reportable. But it is not so good when it comes to assessing health and lifestyle characteristics.

Providing or not providing a loan can ease or add to vulnerability depending on the characteristics of the consumer. In many cases, a characteristic that contributes to vulnerability can be overcome, and indeed this often happens in the advice sector today. The problem is the assessment of vulnerability is subjective and not consistent. And steps to overcome vulnerability vary widely.

Another important point about vulnerability is that it is not binary – customers are not either vulnerable or not vulnerable. Rather, it is a combination of their personal characteristics and circumstances that determines whether they are vulnerable or not – and the extent of their vulnerability.

Unfortunately, firms started to label consumers as vulnerable or not vulnerable and adding this to their customer relationship management systems. While this is understandable and may be a useful first step, firms are now realising everyone’s assessments are different and there is no consistency in the data or the outcomes.

FR: So, if it is not always obvious that a customer is vulnerable, how are firms expected to recognise that?

Everyone would like a simple look-up on a vulnerability database – like a credit score – but unfortunately this does not exist. The most efficient way is to ask consumers themselves. Indeed, happens to some extent at the moment, but in a simple, inconsistent and subjective way. At first glance, some think this is intrusive or will hold up the sale process but, in fact, we already ask consumers lots of questions. Some of these they do not understand or find difficult to answer. One example could be those investment risk-profiling questionnaires, sent out to customer annually, that can be very complex.

Consumers are happy to provide information if they know why they are doing so. It is only when they do not understand that they become reticent. And taking an interest in and understanding customers is a very natural and empathetic thing to do.

FR: How are firms supposed to use information to deliver better outcomes for vulnerable customers?

The goal is to build a system that delivers reliable and objective management information system that can be communicated effectively throughout the firm.

We have launched the MorganAsh Resilience System (MARS) as an easy-to-use, online system that enables firms to assess consumers’ vulnerability accurately in a consistent, structured way. MARS provides an objective ‘resilience rating’ – like a credit rating – that can be recorded, reported and communicated across firms in a consistent way. It also includes a feature that recommends the next steps for managing those with vulnerabilities.

Firms also need management information that delivers an audit trail, showing robust system for collecting information and understanding how customer vulnerability may change over time and in different circumstances. They need to communicate this effectively within the firm yet still, of course, comply with GDPR, and to provide effective management information to the board – so they can be comfortable that vulnerability is being managed.

FR: If you could read one headline about the industry this year, what would it be?

It would be in November, and it would say: “FCA says firms are on course to deliver Consumer Duty requirements – despite the worsening economy.”

We know that by the end of October, the FCA expects firms to have in place a plan for meeting the new requirements. And we know that this is going to be challenging enough – without the backdrop of a worsening economy, soaring inflation and a cost-of-living crisis.

So, it would be great to know that the industry has in place robust systems as we enter a time in which – unfortunately – an increasing number of customers are likely to become more vulnerable.