The responses should be clearly recorded with a summary provided as to why the customer did/did not show signs of vulnerability.
It is important to also build in careful consideration of any indications that the customer might have been coached or influenced to transfer.
In some cases, it may be appropriate to have joint meetings to manage the risks of communications being misinterpreted by either of the firms, or by the customer.
Know your customer and their needs
The more an adviser understands about a customer’s personal and financial circumstances, the better they can advise them.
So, when there are clear indicators of vulnerability, customers requesting a pension transfer or advice should be encouraged to disclose as much information as possible.
It is just as important, though, that the customer understands the advice.
Any communications should be tailored to the clients’ individual needs and circumstances, not delivered as standard ‘one size fits all’.
Firms should make reasonable adjustments to their processes and procedures to meet a client’s specific vulnerability characteristics. For example, if a client has poor literacy, printing documents in a larger font may be helpful.
Avoiding foreseeable harm
The FCA has advised that the risk of avoiding foreseeable harm in pension transfers is mitigated when:
- firms explain clearly and fairly how the features of DB and DC schemes may assist consumers with characteristics of vulnerability;
- firms respond flexibly to consumers’ needs, for example changing the channels for advice from online to face-to-face services;
- firms recognise that consumers in financial distress may need financial guidance and signposting to other organisations that can help them, such as MoneyHelper, not transfer advice;
- firms consider when characteristics of vulnerability, like poor financial literacy, might impact the firm’s ability to assess the client’s attitude to transfer risk or fact-finding; and
- firms identify any external factors that may be influencing a client’s decision such as risk of redundancy and or concern about the pension scheme’s funding position.
The FCA has also advised that poor consumer outcomes are more likely when:
1. A firm’s policies on dealing with vulnerable customers are not sufficiently personalised.
An example of this is a firm policy that handled all customers over the age of 55 as vulnerable, solely based on their age and without assessing them for any other characteristics of vulnerability.
While they were treated with care and empathy, the firm missed opportunities to examine those customers’ individual circumstances. As a result, the firm’s communications and suitability assessments were not targeted to individual customer needs.
2. Firms do not recognise and respond to customer vulnerability in line with the customer’s specific circumstances and needs.
When advising on a potential pension transfer, it is important to get as much detail and information as possible at the outset – not just about any characteristics of vulnerability but also about a client’s objectives and needs.
Processes and procedures should then be flexed accordingly; reasonable adjustments should be made to address any vulnerability and to ensure the outcome meets the client’s needs and objectives.
3. The firm’s processes, systems and controls miss characteristics of vulnerability because of other concerns.
An example of this is a firm with pension transfer permissions that had an influx of queries from customers in one DB pension scheme.
They were introduced by a third-party who had been spreading rumours about the sponsoring employer’s solvency and advising immediate pension transfer.
