With the Financial Conduct Authority (FCA)’s 31 October deadline for firms to share their concerns on Consumer Duty now passed, the spotlight shifts to how the FCA will shape the ongoing implementation of the regulation, particularly around the concept of vulnerability.
While the Duty has aimed to reinforce fairness and transparency in client treatment, it’s clear many advisers still face challenges in consistently identifying and supporting vulnerable clients. Clear guidance from the FCA will help implement the regulation effectively and may enable financial advisers to achieve better outcomes for all clients.
Clarifying vulnerability definitions and criteria
One of the biggest issues emerging from Consumer Duty is the lack of clarity around what constitutes a “vulnerable” client. The current definition from the FCA on vulnerability is “customers who, due to their personal circumstances, are especially susceptible to harm”, which due to its broad scope leaves a lot of room for interpretation.
Historically, financial advisers have struggled with applying a consistent definition, with the FCA’s own survey revealing nearly a quarter of portfolio managers and nearly half of stockbrokers reported having no vulnerable clients. Yet the FCA also reported over 50% of people are vulnerable at some stage in their lives, due to various factors, health, life events, or limited financial understanding.
Within these various factors, there will likely be nuances. Are two clients with the same health condition both considered vulnerable if one is in their 30s and one is in their 70s for example? The FCA now should provide clearer, actionable definitions with contextual understanding so that advisers can identify and assist these clients effectively.
There will be work required for the industry to get there. As a starting point, firms need clearer distinctions between situational (e.g. job loss or bereavement) and enduring vulnerabilities (e.g. chronic health issues) to develop better support systems.
Developing proactive identification mechanisms
The regulations call for firms to anticipate the needs of vulnerable clients, and the ongoing needs of clients who later may become vulnerable, rather than simply responding to disclosed vulnerabilities. However, without standardised tools and methods, firms are left to interpret how best to approach this requirement. Advisers now require guidance on best practices for proactively identifying vulnerability, especially in cases where clients may not disclose relevant information.
This could include embedding more sophisticated risk assessment tools into client onboarding processes and encouraging firms to use indicators such as communication difficulties, financial knowledge gaps, or recent major life events. The FCA’s encouragement to consult with customers who have lived experiences of vulnerability, as well as working with charities, could also be formalised into specific recommendations.
Guidance is also required for the best timeframe and appropriate actions for when a client becomes vulnerable, which could happen at any point if the vulnerability is situational. If a new serious health condition arises that the client does not disclose immediately, how can firms acquire this information and act appropriately? The spirit of Consumer Duty would suggest there needs to be an ongoing assessment of a client’s vulnerability in order to provide the best possible outcomes, but the guidance is currently unclear.
Revisiting evidence requirements for client outcomes
One of the top areas impacted by Consumer Duty is the requirement for firms to demonstrate that they have met client needs and delivered positive outcomes. This is especially pertinent for vulnerable clients, where firms may be unclear on what evidence is sufficient to show compliance. Currently, advisers report spending more on technology to track and document outcomes, but many find the criteria overly complex or vague, leading to duplication and increased administrative burden.
To address this, firms will likely have asked for simplified, concrete evidence requirements that support effective client outcomes without creating excessive reporting obligations. For example, the FCA could provide templates or case studies illustrating what “good” looks like when evidencing positive outcomes for vulnerable customers, helping firms streamline compliance processes and focus more on client care rather than documentation.
The opportunity
The FCA’s aim with Consumer Duty to raise the standard of care across the financial advice industry, particularly in how vulnerable clients are identified and supported, is noble. However, now the October 31 deadline has passed s, the FCA could provide more precise definitions, practical guidance, and streamlined evidence requirements to fulfil these expectations effectively.
Clarifying the nuances of vulnerability, providing tools for proactive identification, and simplifying compliance requirements are all essential steps for firms to deliver truly fair outcomes for their clients. The FCA now has an opportunity to address these key issues, building a regulatory framework that enables financial advisers to support all clients, especially the most vulnerable, with clarity, consistency, and care.
