Financial Conduct Authority  

FCA: 'Advisers do not need to rely on our definition of vulnerability'

FCA: 'Advisers do not need to rely on our definition of vulnerability'
Firms did not need to use same definition of vulnerability as the FCA, Legg said (L-R, Jo Legg, Graeme Reynolds, Nick Hulme)

Advisers do not need to use the same definition of vulnerability as the FCA, according to the regulator's head of consumer policy and outcomes.

Speaking as part of a panel at the Pimfa Customer Vulnerability summit, Jo Legg was asked whether firms had to define vulnerability exactly as the FCA does.

She said: “We want you to feel confident in how you deal with clients with characteristics of vulnerability, so they get good outcomes. We appreciate that that's not always straightforward. Vulnerabilities evolve and people's needs differ.

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“But our vulnerability guidance, which clearly gives a framework to help make sense of all of these quite complex issues, it's built around understanding those four drivers of vulnerability. You've got life events, low financial resilience, low capability, and poor health. And it helps to look at vulnerability as a spectrum of risk. So it's important to recognise that vulnerability can be temporary or episodic, as well as being something that's permanent and it might impact clients in different ways. 

“You don't have to use the exact same definition that we do, but it is there to help and support you in trying to work with your clients to get them the best outcomes.”

Legg said the regulator did not have a specific percentage or target number of vulnerable clients in mind and instead it was about firms being aware of the wider context and how that might filter through to your target market. 

“The Financial Lives survey statistics provide a nationally representative view of vulnerability. They give context to help you with that job of thinking through what goes on in the target market. And they also help us at the FCA understand the wider landscape. 

“You've got 31 per cent of UK adults with £50,000 or over of investable assets having at least one characteristic of vulnerability. So that might not always translate into a specific support need, but it might well. We've seen some incremental improvement in the course of the past year, but there's certainly further to go,” she added.

She was joined on the panel by her FCA colleagues Graeme Reynolds, director of consumers and competition and Nick Hulme, head of department for advisers, wealth and pensions.

Hulme said firms working on an agent as client basis are not free from thinking about vulnerability.

One audience member explained they did not have any retail clients and their relationship was with the IFA on an agent as client basis and they wanted to know what the FCA expected from them

Hulme explained there was a role for DFMs to play in supporting those with vulnerability but recognised the role may be limited. 

“It may be that there are more limited obligations on the portfolio manager, the consumer duty is proportionate in that sense. The key point though is that the firm is still within the distribution chain, and there are still retail clients at the end of it.