To fulfil Consumer Duty regulatory requirements, firms in the financial services sector will need to hold data about the vulnerability of their customers.
And to use this data effectively, firms will need to store and manage it digitally, not on paper.
Those in financial services can draw lessons from the experiences of the tech giants and learn from the backlash by consumers against some of these companies, who face accusations of using data on customer characteristics to boost online sales.
When it comes to gathering and storing digital information on vulnerability, we should be open with customers.
We need to explain to them the benefits of obtaining and holding this sensitive information.
Firms have a variety of ways of collecting information about their customers, including from on-line forms, verbal face-to-face meetings and discussions over the phone.
In our view, all firms will need to understand their customers better if they are to improve their understanding of vulnerability and successfully fulfil Consumer Duty objectives.
This information should be kept digitally, so it can be easily recalled by staff and communicated effectively throughout firms.
This can be done – and comply with General Data Protection Regulation – mostly on the basis of explicit consent from the customer, although other ways of obtaining permission may be applicable in some circumstances.
One of the big challenges in storing personal information is therefore in obtaining the customer’s consent.
The tech giants have faced challenges over the way they have obtained and stored personal data. Smaller firms – and those at an earlier stage in the process of developing systems for storing and using consumer data – can avoid negative sentiments and learn from their experience by explaining the benefits of holding personal information, sometimes referred to as a value exchange.
Avoid common pitfalls
We need to avoid pitfalls sometimes associated with sectors like the life insurance industry – the perceived belief among some customers that it is best if you “don’t tell the insurance company as you may not get paid out.”
In fact, we all know that the exact opposite is true.
If a consumer does not behave openly in giving full and accurate information, then they are more likely not to get paid when trying to make a claim.
Digital records of consumer characteristics are in the interest of both the consumer and the adviser, and necessary to comply with The Financial Conduct Authority’s (FCA) Consumer Duty regulations.
It is also essential that these digital records are based on an objective assessment, and that they can be shared within firms and between firms where appropriate.
Finally, we must always remember that the FCA’s drive on vulnerability and Consumer Duty is intended to protect the customer.
We need to explain this to customers when gathering essential data to complete our own vulnerability assessments.
