Vulnerable Customers and the Consumer Duty

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For financial professionals only

The term ‘vulnerable’ appears over 100 times in the FCA’s new Consumer Duty guidance, but what does it actually mean?

The FCA's definition of a vulnerable customer

In 2021, the FCA defined a vulnerable customer as:

"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 key drivers of vulnerability

The FCA guidance on vulnerable customers lists four key drivers. They are:

  1. Health
  2. Life events – like bereavement, or sudden caring responsibilities
  3. Resilience – a client’s ability to cope with unexpected financial or emotional situations
  4. Capability – less understanding and/or confidence when making financial decisions

Crucially, vulnerability is not necessarily permanent. It can be broad, transient and/or situational. In other words, anyone can be vulnerable at any time. We are all unwell at different points in our lives, bereavement for example, is something that seems to hit us more often as we age and become less capable of handling our affairs.

This is the point of the new Consumer Duty - to ensure that all customers, regardless of their situation, receive a good outcome.

Every customer, especially vulnerable customers, should benefit from the inclusive design of the new regulations. This is explained in the introduction to the FCA’s guidance on vulnerable customers, FG22/5, Section 1.27:

“We expect consumers with characteristics of vulnerability to benefit from the overall improvements in outcomes delivered as a result of the new Duty …”

Perhaps this is why the FCA have reconsidered the use of the term ‘average customer’ in the final rules. When any customer can be vulnerable, the aim is to avoid foreseeable harm of each and every customer in the target market.

Inclusive design is the exercise of creating products and services that can be accessed and used by as many people as possible, regardless of their abilities or circumstances. This is especially important for vulnerable customers, who may be at a disadvantage without it.

Our inclusive approach to Consumer Duty

At Parmenion, we believe in taking an inclusive approach towards all clients. That’s why our Customer Service, Operations, and Complaints teams all receive annual training from industry experts in vulnerability. As part of our continuous improvement, we have expanded our vulnerability training to the teams who build our technology and services so that we can provide an even better experience for all our clients. A working group focused on addressing the needs of vulnerable customers meets regularly to evaluate and wherever possible improve our levels of care.    

If you’d like to know more, visit our Consumer Duty guidance hub.

Leah Wilkins, Head of Client Services Intermediary

This article is for financial professionals only. Any information contained within is of a general nature and should not be construed as a form of personal recommendation or financial advice. Nor is the information to be considered an offer or solicitation to deal in any financial instrument or to engage in any investment service or activity.

Parmenion accepts no duty of care or liability for loss arising from any person acting, or refraining from acting, as a result of any information contained within this article. All investment carries risk. The value of investments, and the income from them, can go down as well as up and investors may get back less than they put in. Past performance is not a reliable indicator of future returns.  

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