The past few years have seen people hit by a multitude of financial and emotional shocks.
Rising prices and spiralling borrowing costs, coming hot on the heels of the pandemic years, have seen people’s resilience severely challenged.
It is alarming to see the level of financial vulnerability in the UK; the Financial Conduct Authority recently found that 7.4mn people are struggling to pay their bills and credit cards each month, and the Fabian Society say that a quarter of 60 to 65-year-olds are currently living in poverty – almost 1.2mn pre-retirees.
If the past few years have shown us anything, it is that anyone can become vulnerable at some point in their lives, for reasons including health, circumstance and money, and this has rarely seemed starker.
While people with financial advisers are likely to be more financially comfortable than the average person, they could still be in vulnerable circumstances and one of the biggest benefits of having an adviser is the help they can provide through events like bereavement, divorce, or a deterioration in health.
The FCA's consumer duty is rightly pushing organisations to deliver better customer outcomes and firms are embracing this opportunity, dedicating time and thought to considering how risks of harm can occur.
This is particularly important for vulnerable customers, and in the retirement income review the FCA called out the importance of recognising vulnerability and having effective vulnerable customer processes in place.
Identifying vulnerability
When we talk about vulnerability, for simplicity and consistency the FCA definition of a vulnerable customer is helpful: someone who, due to their personal circumstances, is especially susceptible to harm, particularly when a firm is not acting with appropriate levels of care.
The FCA highlight the key causes, but not exclusively, as:
- Health: people with health conditions or illnesses that either significantly affect their financial situation or affect their ability to carry out day-to-day tasks.
- Life events: people who have experienced significant life events such as bereavement, job loss or relationship breakdown.
- Resilience: people with a low ability to withstand financial or emotional shocks.
- Capability: people with a low knowledge of financial matters or low confidence in managing money (financial capability), and low capability in other areas such as literacy or digital skills.
On vulnerability in the UK, the FCA's Financial Lives 2022 survey found:
- Around four in 10 adults say it is very or somewhat difficult to afford their energy bills.
- A third of adults paying rent or a mortgage said they were finding payments very or somewhat difficult to afford.
- More than four in 10 adults say they have bought less food when shopping in the last two weeks.
- 47 per cent of UK adults have characteristics of vulnerability, but only 13 per cent of them consider themselves to be vulnerable.
Identifying and being self-aware of vulnerability can be difficult. Many of those who are vulnerable do not see themselves as such, and this can prevent them seeking out help and be challenging for companies to identify these characteristics among their customers.
Advisers have an opportunity to explore potential vulnerabilities in their conversations with customers, but the drivers are complex.
It is not just the pandemic, the cost of living crisis or issues of an ageing population that are making people more susceptible, other factors such as rising rates of obesity and mental health disorders also contribute to the increase in vulnerability across society.
There are key groups where vulnerability is more evident, and it often has deep roots in society and the workplace. These groupings include women, single people, minority ethnic communities, carers, people with long-term health conditions or disabilities and private renters.
Women and ethnic minorities are more likely to experience poverty because they have experienced workplace and earning inequalities, for example.
