"In the event of an improved economic outlook there may be a reduction in those experiencing financial vulnerability, however, there is still a large section of society living with physical and mental vulnerabilities."
56% of UK adults would be identified as vulnerable under the categories of the upcoming Consumer Duty regulations, up from 47% in May 2022, according to new research from customer experience experts, Watermelon.
The FCA’s Consumer Duty requires financial services firms to act to deliver good outcomes for all retail customers. It requires them to consider the needs, characteristics and objectives of their customers – including those with characteristics of vulnerability – and how they behave, at every stage of the customer journey.
With requirements due to come into force from 31st July 2023, new findings highlight the scale and the importance of the challenge at hand. Watermelon’s study focused on 14 different financial products, from current accounts to pensions. For products with a typically more affluent customer base, such as investment platforms, 1 in 3 customers would still be characterised as vulnerable.
Whilst the current cost of living crisis is likely to have pushed many more people into financial vulnerability – 82% of vulnerable customers agree that it has impacted their priorities and preferences – there is still a large proportion of consumers describing themselves as living with pre-existing physical and mental vulnerabilities and 88% of this cohort also agree with its impact in contrast to just 60% of non-vulnerable customers.
Furthermore, the research shows that those customers living with a physical or mental vulnerability are almost 10 times more likely to be struggling with bills and regular payments (29%) compared to just 3% of non-vulnerable customers of financial services companies.
When asked about their current financial situation only 5% of this vulnerable cohort agreed that their income currently exceeds their outgoings and that they are able to save comfortably. More than a quarter (29%) cited reducing their debt as their top financial objective to achieve this year.
The findings highlight that, for now at least, financial services providers are falling short. Of those with a vulnerability impacting on their understanding, only 38% said that their financial services provider was aware of this. More worryingly, even when they were aware of it – additional support was only offered in 62% of cases.
Sian Kerr, chief strategy officer at Watermelon, commented: “The FCA’s definition of ‘vulnerable’ is a broad church. So, it is particularly worrying that there’s such a clear disparity between the ‘vulnerable’ and ‘non-vulnerable’ when it comes to financial wellbeing and resilience. We’ve found a significant number of vulnerable customers have ambitions of paying off debt, but without being able to put aside a little each month, or at least a plan to get to that point. This is a worthy ambition that is likely to go unfulfilled.
"In the event of an improved economic outlook there may be a reduction in those experiencing financial vulnerability, however, there is still a large section of society living with physical and mental vulnerabilities. These customers may have an ongoing need for support and assistance from financial services providers.
“Our research shows that there are a number of areas where financial service providers can make a huge difference for the growing numbers of us with either permanent or transient vulnerabilities. By understanding customers better, and working with those at particular risk, financial service providers are best positioned to help all their customers, including the vulnerable, toward a more confident and resilient financial future. With Consumer Duty on the horizon, the FCA, along with these providers, will be rightly judged on whether these numbers improve.”
