What impact will the Consumer Duty have on vulnerable client processes?

When the Consumer Duty’s final rules arrived on the 27th of July, they ushered in what has been broadly referred to as a ‘new era’ of financial advice.  The new regulation highlights a number of key areas in financial planning; consumer protection, how manufacturers and distributors build and distribute products and services, product governance and how firms charge consumers, to name but a few.  However, the FCA’s desire to ensure the fair treatment of vulnerable clients is not only a stated objective of the Consumer Duty, but also a principle which is woven throughout the entire document.

The Consumer Duty brings us a new Principle, and a suite of other rules and guidance, which reinforces the existing Handbook.  It is expected that firms ensure vulnerable consumers benefit from the overall improvements in outcomes delivered as a result of the new rules. 

The Consumer Duty rules made it very clear that firms can expect to be asked to demonstrate how their business model, the actions they have taken, and their culture ensure the fair treatment of all customers, including vulnerable customers. To further emphasise the importance of this area, the regulator stressed that firms should be aware that the way they supervise the treatment of vulnerable consumers will be integrated into their supervision and this is not a one-off supervisory exercise.

The regulator also highlighted business models and culture as the key drivers of harm in firms.

It will assess culture and look at what drives behaviour in a firm, and address the key drivers of behaviour which are likely to cause harm, including -

• the firm’s purpose, as understood by its employees

• the attitude, behaviour, competence, and compliance of the firm’s leadership

• the firm’s approach to managing and rewarding people, such as staff competence and incentives 

• the firm’s governance arrangements, controls and key processes, such as for whistleblowing or complaint handling

The regulator also used the Consumer Duty rules as a reminder that all customers are at risk of becoming vulnerable.  As in its previous papers on vulnerability, the regulator reinforces the importance of embedding the fair treatment of vulnerable consumers within a firm, and that all relevant staff should understand how their role affects the fair treatment of vulnerable consumers.

Equality and diversity considerations

In its work outlining the responses it had receive to CP21/13, the FCA noted that it was keen that firms “…should be aware that particular groups of customers, for example who share different demographic characteristics such as age, race, socioeconomic background or characteristics of neurodiversity may have or be more likely to have characteristics of vulnerability”.

Considerations around a firm’s approach to diversity in terms of vulnerable clients are particularly important where groups sharing protected characteristics (as defined in the Equality Act 2010) may be disadvantaged. Firms will need to satisfy themselves - and be able to evidence - that they fully meet the standards required by the Consumer Duty for all its customers.

Over the coming months, advice firms will need to begin their implementation plans on how to manage the practical application of a cultural shift.  One of the biggest threats to firms is that they might look at the objectives of the Consumer Duty, think “We already do that” and dismiss its fuller implications.  The FCA is going to expect to see clearly both how firms are meeting the requirements of the new regulation, and that they understand why. 

At the centre of the Consumer Duty guidance lies a simple suggestion; that an adviser should treat a client in the way that they themselves would wish to be treated.  Whilst this is the approach that the vast majority of advisers already follow in principle, the practicalities of identifying, raising and discussing areas around vulnerability can sometimes be uncomfortable in practice.  Despite the hardships we’ve all faced over the past few years, I’m hopeful that one positive might be that recognising and talking about the way we and others feel has become more natural. What do you want your readers to know? Make your text stand out by customizing the font, style and format.

We were pleased to be asked to contribute this piece on the Consumer Duty’s impact on advisers’ vulnerable client processes to the Financial Vulnerability Taskforce’s newsletter.

Find out more about the taskforce