Progress on vulnerability: it’s the benefits, not the costs, that will count

The Money Advice Trust’s Vulnerability Lead Consultant Chris Fitch takes a first look at the FCA’s revised guidance on the fair treatment of vulnerable customers, published today.

What is 109 pages long and could cost the financial services sector £710m to implement?

While it’s unlikely this question will ever make Mastermind (unless I get on it), it will be on the minds of every UK financial firm this week.  That’s thanks to the FCA’s publication of GC 20/3 (‘Guidance for firms on the fair treatment of vulnerable customers’), in which the regulator has provided their clearest indication yet of the scale, cost, and likely direction of the vulnerability agenda.

And, as GC 20/3 is a consultation (rather than finalised guidance), we still have the opportunity to shape this agenda – so what might we look out for?

Eye-catching numbers

Inevitably, it will be the numbers that initially catch the eye.

Firstly, the FCA points to the 24 million UK adults in circumstances (life, health, or financial) which could make them vulnerable to harm.  The FCA use this to underscore the need for firms to design products, services, and processes which reflect the challenges of real-life for many people in the UK.   This means not relying on the abstract template of the ‘average reasonable consumer’, and recognising that many people – including poorer households, women, and renters – will need financial services to see things from their perspective.

Secondly, the FCA then introduce £ signs into the guidance for the first time.   The FCA estimate that implementing their guidance across financial services will cost £710 million as a ‘one-off’ figure, and £450 million in each following year.  For the smallest firm, this could cost £3.2K and £2.4K, and for the largest £33m and £2.4m.   Critically such estimates can be seen in two ways.   Either as the pendulum having swung too far on the expectations placed on firms to understand vulnerable customer needs, design products, or change communications.   Or as an investment that will save manifold costs in other areas, and positively change lives (this is certainly the position that we take).  However, among the 52,000 firms the guidance applies to, there will undoubtedly be a debate and a reaction.

Thirdly, the FCA note these are all ‘COVID-19 free’ estimates.  While 23% of UK workers have either been furloughed, lost their job, or lost hours and pay, the current guidance was undertaken prior to the global pandemic.  However, in issuing a Summer consultation, the FCA may be aiming to not only incorporate feedback on vulnerability and coronavirus, but to also publish a finalised set of guidance for firms to implement in short order, given the impact of the outbreak on households and their finances.

For every cost, a benefit

But for every cost, there is a benefit.   

Clearly, it can be difficult – with current data – to quantify consumer benefits of the FCA’s guidance.  However, running right-through the FCA’s guidance is a belief that it will lead to more appropriate consumer transactions (with people making more informed decisions to get the products they need), and greater reductions in financial difficulty (due to fewer unsuitable consumer product purchases).

Furthermore, the FCA also believe the guidance (if implemented correctly) will lead to reductions in psychological stress (as consumers will receive more timely help and support), and consumer time savings (from better quality interactions, and avoidance of complaint and redress procedures).

In addition – using research by myself, Jamie Evans, and Sharon Collard at the University of Bristol – the FCA illustrate that while it may cost £450m a year to meet their vulnerability agenda, this could be covered if the guidance led to operational cost-savings of just £50-£180 per vulnerable customer.

Getting from C to B

Getting from Cost to Benefit is, sadly, easier said than done.  However, the FCA guidance makes three new contributions to help firms do this.

Firstly, I am pleased to see that the FCA now points to the importance of common harms.   Alongside establishing what a consumer is vulnerable to (which helps firms avoid getting lost in definitions about ‘what is vulnerability’), firms can also benefit from thinking about the broad groups of harms that consumers can experience.

I have long seen through our work with creditors that rather than looking at vulnerability through the prism of just one health condition or life event, firms can find it more helpful to think about much broader difficulties or common harms that affect a range of vulnerable consumers (rather than just one ‘type’).

Doing this – if we use decision-making difficulties as an example – can allow firms to not only help people whose mental health problems may impair their decision-making, but also those with cancer whose medication affects the choices they make, or even people with literacy or language problems.

Moving between these two positions (a focus on specific conditions/drivers, as well as examining broader categories of harm), is a skill the Money Advice Trust has sought to embed through our Vulnerability Academy partnership with UK Finance.

Secondly, the FCA’s further emphasis on the design of products, services, and journeys that take vulnerability into account, is very welcome.   The high-level guidance on the design cycle and the involvement of vulnerable consumers within this (‘nothing about us, without us’), underlines the importance of building vulnerability into a firm’s culture.   To complement this design guidance, the Trust will soon be offering a course on vulnerability and design, which will commence in the Autumn – and we continue to work on this agenda with our friends at Fair By Design on the Inclusive Design in Essential Service project.

Thirdly,the guide includes a new section on practical and emotional support for staff – this is key.   While the ‘consumer voice’ on vulnerability must always be heard, our staff are the ones that have to translate vulnerability policy into frontline practice.   For too long, as the Trust’s long-standing course on ‘Building Staff Resilience and Wellbeing’ has maintained, their experience and needs have not been as clearly heard, and this represents a step in the right direction.

Finally, the guidance has a strong emphasis on data collection, monitoring, and outcomes.   Given the FCA expect firms to demonstrate that “vulnerable customers experience outcomes as good as those for other consumers”, every firm clearly needs its own ‘vulnerability data’ strategy. 

While the FCA offer some high-level guidance on this, there is only so much that can be expected of the regulator in this respect.  Consequently, firms may need to be cautious in using the information provided to build their own strategies.   To support firms in this, the Trust and the Money Advice Liaison Group have been producing a new and practically detailed guide on vulnerability and GDPR.   This will be released in the Autumn.

Is it enough?

The new FCA guidance is welcome, well-considered in many places, and certainly in the wake of the impact of Covid-19, timely.

While some firms may not have anticipated including a major consultation in their Summer itinerary, this may make it possible for firmer guidance to be in place for everything the Autumn may bring in financial and health terms.

And although some commentators may question the FCA’s ‘pausing’ of discussion around Duty of Care, the linguistic distancing employed by the regulator in relation to overseeing the Equality Act, or the guide applying to sole-trader and partnership businesses (but not incorporated companies of equal size), the opportunity to challenge and shape the draft still exists.

So – based on this first look –is it enough?    With 100 pages of guidance, including a cost benefit analysis, and accompanied by separate qualitative and quantitative research findings, it is certainly enough as a suite of documents.

However, we will only know whether it is enough in real-life (rather than on paper), if it delivers the outcomes that vulnerable customers need to overcome their difficulties, and firms require to make vulnerability a commercially viable part of their business.

And this will take time.   Time to translate, time to implement, time to measure, and time to decide. Consequently, GC20/3 represents a five year plan for financial services, rather than an ‘end game’. 

The Money Advice Trust is hosting a free webinar discussion on the FCA’s revised guidance, led by Chris Fitch with guests Fiona Turner from UK Finance, Tim Hawley from Capital One and Bailey Kursar from Touco, at 10am on Wednesday 5th August.  Register to attend the webinar here.

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