Vulnerable Persons Guide PDF

Vulnerable Persons Guide Understanding your responsibilities and ensuring vulnerability is considered when acting on behalf of a client. Many thanks to our trusted partner, Just Group plc, for providing access to invaluable research and resources used when building this guide. VULNERABLE PERSONS...

Vulnerable Persons Guide Understanding your responsibilities and ensuring vulnerability is considered when acting on behalf of a client. Many thanks to our trusted partner, Just Group plc, for providing access to invaluable research and resources used when building this guide. VULNERABLE PERSONS GUIDE Vulnerable Persons Guide Despite the increasing importance of identifying and addressing customer vulnerability from not only a regulatory but also social perspective, it can still be a difficult area to approach with clients. Every single one of your existing or future clients – in fact, every single one of us – has the potential to be vulnerable at some point in our lives, and yet discussing those issues can still feel like it carries something of a taboo. So, let’s talk about vulnerability Whilst, for many, the motivation to address how vulnerable clients are treated is rooted in regulation, the benefits a robust policy, approach and culture can bring to a firm are myriad. In addition to knowing you have done all you can to ensure you are delivering suitable guidance, addressing your stance on vulnerable customers can also strengthen your relationship with existing clients and introduce you to new generations of potential clients. We wanted to ensure that we offered you support across the entire spectrum of this complex area, from identifying vulnerability in individuals to tackling challenging conversations, making sometimes difficult decisions about the advice process and creating your policy and procedures to, where necessary, making recommendations of where clients can access further specialist support. More information and resources can be found in our online Vulnerability Hub. Regulation and responsibilities All firms have a responsibility to set out an approach to dealing with vulnerable persons, which should be accounted for in its vulnerable persons policy. It is important as part of that policy to understand the responsibilities the firm has under its authorisation by the FCA, and to ensure vulnerability is considered when acting on behalf of a client. The FCA has not - and will not - make specific rules to address each area of vulnerability, but instead establishes the responsibilities within its principles for all firms. These include: FCA Principles Skill, Care and Diligence A firm must conduct its business with due skill, care and diligence. Management and Control A firm must take reasonable care to organise and control its affairs responsibly and effectively, with adequate risk management systems Customers’ Interests A firm must pay due regard to the interests of its customers and treat them fairly. Communications With Clients A firm must pay due regard to the information needs of its clients and communicate information to them in a way which is clear, fair and not misleading. Customers: Relationships of Trust A firm must take reasonable care to ensure the suitability of its advice and discretionary decisions for any customer who is entitled to rely upon its judgement Consumer Duty A firm must act to deliver good outcomes for its customers. 2 VULNERABLE PERSONS GUIDE Consumer Duty The new Consumer Duty is designed to have a positive impact for consumers with vulnerable characteristics . In addition to the new Principle 12 above the FCA has created a suite of rules and guidance setting more detailed expectations for firm conduct in four areas that represent key elements of the firm-consumer relationship. • Products and services are designed to meet the needs, characteristics and objectives of their target market. • Products and services provide fair value with a reasonable relationship between the price consumers pay and the benefit they receive. • Firms communicate in a way that supports consumer understanding and equips consumers to make effective, timely and properly informed decisions. • Firms provide support that meets consumers’ needs throughout the life of the product or service. Consumer Duty will raise the standard the FCA expects from firms across the board and builds on existing published vulnerable persons guidance. Consumer Duty creates new rules which explicitly embed consideration of vulnerable customers at every stage of the customer journey, through both compliance but also a focus on culture within the firm. Ultimately, the FCA wants to see customers in vulnerable circumstances receive outcomes as good as those experienced by other customers. Firms will be expected to monitor the outcomes that vulnerable customers receive and where a firm identifies issues it will be expected to take appropriate action. So, who are vulnerable persons? It is difficult to explicitly define who is vulnerable or what characteristics means a person should be considered vulnerable as it is a wide ranging and often complex area. However, the FCA defines vulnerability as follows; Someone who, due to their personal circumstances, is especially susceptible to detriment, particularly when a firm is not acting with appropriate levels of care. What constitutes someone to be vulnerable - or potentially vulnerable - can include: Health – health conditions or illnesses that affect the ability to carry out day-to-day tasks. Life events – major life events such as bereavement or relationship breakdowns. Resilience – low ability to withstand financial or emotional shocks. Capability – low knowledge of financial matters or low confidence in managing money. There is no definitive list of the different types of vulnerability. Even if there were, different people react differently to different situations and it is therefore important to: • Understand the different types of vulnerability. • Assess the impact it can have on those people and the decisions they take. • Determine how your firm deals with different people with different vulnerabilities. 3 VULNERABLE PERSONS GUIDE Understanding the different types of vulnerability You may deal with customers who at outset are in a permanent or temporary state of vulnerability. You may also deal with someone who at outset would not be considered to be in a vulnerable position but changes to their personal circumstances could, in turn, change that status. Therefore, to understand vulnerability it is important to identify some of its drivers. Whilst it would be very difficult to create an exhaustive list, here are some of the factors that could help you identify potential vulnerability: Characteristics Age People in care Poor health Mental health issues Learning difficulties Physical disabilities Being a carer Low literacy Language barriers Low income Living conditions Lone parents Cultural barriers Poor communication skills Subject of abuse Displaying a characteristic does not automatically mean the individual is vulnerable. Identification of the characteristic can deliver the same outcome, albeit in a suitably tailored manner, however, it is important to determine if the characteristic has led the customer into a particular personal situation or vice-versa. Situations Bereavement Loss of income Unemployment Victim of crime/accident Relationship problems Gambling problems Drink/drug problems Recently left care Residency uncertainty A person with a vulnerability is usually described as someone who is at a higher risk of harm than others. It is possible the customer may be subject to more than one area of vulnerability. It will not always be easy to identify a vulnerability. Some of the signs may be obvious, whilst others may be hidden or not disclosed. It should not be assumed that a customer will disclose a nature of vulnerability that cannot be identified through the naked eye or by having a basic knowledge of that customer. It may only be identified through thorough questioning of the customer to fully understand their circumstances and appreciate their needs. The risk of not understanding the vulnerability therefore increases where there is no personal interaction with the customer. To offer some additional support in this area, in early 2023 we partnered with Comentis, producer of the UK’s leading financial vulnerability assessment tool. We have combined our market leading compliance experience with Comentis' award-winning vulnerability assessment platform to create a new solution with an extra level of regulatory support when it comes to identifying and supporting vulnerable clients. We are working closely with Comentis to analyse and track trends in the vulnerable clients’ space, and deliver guidance designed to provide support in the most relevant areas. Find out more in the Vulnerable Clients Hub on our site. 4 VULNERABLE PERSONS GUIDE Assessing the impact consequences of vulnerability Research carried out by the FCA shows there are many consequences that can result from a person suffering a vulnerability. These include: • Heightened stress levels due to difficult, or different, personal circumstances • Increasing time pressures due to additional responsibilities • Increasing preoccupation (‘brain is elsewhere’) limiting ability to manage • Processing power and ability decreases due to competing pressures, for example, due to the side effects, or emotional toll, of receiving medical treatment • Lack of perspective, especially when experiencing something for the first time, not fully understanding the broader implications; unable to make comparisons, or see the ‘bigger picture’ • Changing attitudes towards taking risks; people often become more ‘reckless’ and/ or careless at moments of stress These consequences may affect the way in which vulnerable customers engage with firms. In particular, vulnerable customers may be significantly less able to represent their own interests. They may have non-standard needs, and may be more prone to certain behavioural biases that negatively impact their decision making. This can lead to: Disengagement with the market and inability to manage Products may not be reviewed and held for a longer period without switching as it can be overwhelming for vulnerable customers to undergo these processes. Products can be difficult to manage and review and, should things go wrong, they are less likely to understand if, or how, redress should be sought. Scams Vulnerable people can be more easily persuaded to disclose personal details, especially through unsolicited approaches. It is sometimes difficult for them to check or understand unusual transactions, especially for the elderly, who may be lonely. Exposure to mis-selling There is a danger of the customer falling victim to pressure selling or to be provided with inappropriate products when the firm does not understand the circumstances of the customer. There is also the danger that customers purchase inappropriate products because they do not understand the features, terms or conditions of the product. Firms should carry out an impact assessment on their target clients, and the suitability of the products and services they provide. These considerations must account for: • Firms understanding the nature and scale of drivers of vulnerability present in their target market and customer base. • Firms understanding the impact of vulnerabilities on the needs of customers in their target market and customer base. • Firms considering how vulnerabilities could affect the customer experience and customer outcomes. It is important for all firms to understand the types of clients it targets. Do they come from similar backgrounds? Do they have similar needs? How does the firm attract new clients? This must then be linked to the types of products and services it sells. Are products/services too complex, or is there a possibility customers will not understand the risks and features? Can this lead to the mis-selling of products/services? How are products/services distributed? Can we communicate with our target customers in a manner they will understand? An effective way to demonstrate the above is through a Vulnerable Persons Policy. This will set out clearly your approach to dealing with vulnerable customers and the duty of care the firm has to those people. Investment and Insurance firms have the added responsibility of the Product Governance and Intervention (PROD) rules. This will go a long way to answering some of the high level questions above. 5 VULNERABLE PERSONS GUIDE Determining how your firm deals with different people with different vulnerabilities Once a vulnerability has been identified, the firm needs to consider how it is recorded and what, if any, changes they make to their sales or service processes and outcome. Some vulnerabilities are not always easy to deal with. Once a vulnerability has been identified and understood, the firm may deem that specialist support, which is not within its own capabilities, expertise or resources, is necessary. Website support • Dedicated vulnerability hub • Vulnerability policy • Vulnerability checklist At that point, the firm can cease to act on behalf of the customer and may wish • Vulnerability client record form to refer them on to a suitably qualified and experienced firm. A firm may take • PROD assessment document this decision if it believes it cannot act in the client’s best interests. There is no requirement to deal with a vulnerable client, should the firm not have the expertise to deal with the nature of vulnerability. The firm should always ensure it terminates the relationship in a way which is fair to the customer. You should ensure when you are recording a client’s vulnerability you do so that it clearly establishes its status - permanent or temporary - the nature and the effect on your service to them. Some of this information will be considered sensitive (special category data) for the purposes of GDPR. This information is important to hold on file for your FCA regulatory purposes, but you must also consider your GDPR responsibilities. Carefully secure the data and do not disclose it to any third party that is not required to process the information. Where a third party requires the sensitive data, always ensure you hold the client’s consent to provide/disclose it. Once you have an established a policy and have carried out dealings with vulnerable individuals, consider how those experiences can help shape future policy improvements by creating a culture of learning from situations that could be improved upon to provide better outcomes for all clients. Dealing with and supporting your client Once you identified a client as a vulnerable person it is not recommended you Look out for clients who: treated you as a vulnerable person’. This will be reflected in the outcome of the • Struggle to recall or communicate basic personal information advice/service based on their circumstances. • Become unexpectedly and highly emotional There are a number of academic theories that are widely used when dealing with the certain types of vulnerabilities. This document is not designed to • Struggle to understand information or explanations provide you with the skills to apply these in practice but simply to make • Provide conflicting information or answers label or notify this to them in the same language i.e. ‘we have identified and you aware of some of the approaches you can take. This should state ‘It is suggested you refer to other sources of support we make available to understand these in more detail and for you to confidently apply these principles. It is difficult here to cover all the varying types of theories to cover all vulnerabilities but a significant subject that can cross all ages and groups in society is health and mental health. The use of these theories are often recognised by way of their acronyms and include: • BRUCE • IDEA • Are repeating themselves • Have conversations that appear farfetched, extreme or erratic • Mention they are moving into care or in with family • Are prompted in the background by third parties • Do not recall recent conversations or details of the policies they hold • TEXAS Each of these theories adopt a different type of questioning to understand, interact and support people in areas of health and mental health. There can be no definitive list to the types of questions to use but below we list some examples of the considerations and questions once you have been alerted by some of the triggers by your client: 6 VULNERABLE PERSONS GUIDE BRUCE When your client has mental capacity limitation Behaviours Consider the things a customer says or does. These may be triggers that suggest they’re struggling with decision making. Remembering “Would it be helpful if I went over that again?” “Would it be helpful if I put that in writing?” “Is there someone that usually helps you with your finances?” Understanding “Do you want to tell me what you’ve understood so far and I can fill in gaps.” “Would it help if I explained that again?” “Is there someone that usually helps you with your finances?” Communicating “Is there another way you’d like us to communicate with you?” “Is there another time when it would be better to have this conversation?” “Take your time.” Evaluate (or weigh up options) “Would it be helpful to go through each option again?” “Do you have someone you normally talk these things through with?” IDEA When talking to a customer about their situation or health condition Impact “What are you finding hard?” “What has been the impact on your day-to-day living?” Duration “When did this first start to happen?” “How long have you been experiencing this?” Experience “Is this happening often?” “Have you experienced this before?” “Could it happen again?” Assistance “Are you receiving any support / assistance / medication?” “Have you asked about whether you’re entitled to more support / assistance / benefits?” TEXAS To gain consent to record sensitive information shared by your client Thank them “Thank you for sharing.” “I appreciate you telling me what’s going on for you.” “I appreciate you sharing how you’re feeling.” Explain how the information will be used “I can make a note on our records.” “This will mean you won’t need to keep repeating yourself.” “It will help us support you better.” “We can see what we can do to help.” “This information will only be shared within our organisation.” gain eXplicit consent “Are you happy for me to make a note of what you’ve shared today?” Ask “Is there anything you’d like us to do which will help?” “Are you getting any help from anywhere – for example family?” You can also use IDEA for additional help on asking questions. Signpost “Some of our customers have found it helpful to speak to ……..” Do you have a list of external experts we can signpost to? “Leave it with me and I’ll see what more we can do to support you” You can then either speak to your VC champion for more information or search online. *Supported by research carried out, and provided by, Just Group plc. 7 Fintel House, St Andrew’s Road, Huddersfield HD1 6NA T: 01484 439 100 E: [email protected] simplybiz.co.uk May 2023