Understanding customer vulnerability in the age of COVID-19

Understanding customer vulnerability in the age of COVID-19 | Insurance Business New Zealand

Understanding customer vulnerability in the age of COVID-19

There has never been a time like this in recent memory, with COVID-19 challenging our daily living, economic stability and behaviours in unprecedented ways – putting a ‘magnifying glass’ on New Zealanders’ financial vulnerability.

It’s an important and immediate reminder of the role financial advisers have in ensuring good client outcomes, and the timing couldn’t be more fitting. We’re just a few months away from the new regime, which defines customer vulnerability practices within the wider context of ‘good conduct’.

Here’s how advisers can understand and identify vulnerability, supporting vulnerable clients throughout the advice process.

What does ‘vulnerable’ mean?
In June, the FMA issued an information sheet titled ‘Customer vulnerability – our expectations for providers’, which presents a clear set of guidelines and principles that apply to advice businesses as well.

According to the FMA, “a vulnerable consumer is one who, due to their personal circumstances, is especially susceptible to detriment, particularly when a firm is not acting with appropriate levels of care.” In other words, financial vulnerability is not related to a particular ‘type’ of person, but can stem from a specific event or a set of personal circumstances.

Again, COVID-19 has exposed the extent of financial vulnerability with undeniable intensity. According to a survey conducted by the Commission for Financial Capability during Alert Level 4, a widespread lack of financial awareness, confidence and resilience has aggravated the impact of this crisis on Kiwis’ financial wellbeing, with 34% of households being in difficulty and 40% being at risk of tipping into hardship. This is where quality financial advice can make all the difference.

Understanding the key drivers of vulnerability
The ‘personal circumstances’ that can lead to financial vulnerability are wide-ranging, and can include:

  • Sudden challenges like financial hardship or redundancy
  • Traumatic events like bereavement, natural disasters, diagnosis of serious illness, or violent crime
  • Serious or chronic health issues
  • Physical or mental disabilities or impairments
  • Age-related issues
  • Communication difficulties.

Many financial products are difficult to understand, even for the most educated customers. They can be clouded by obscure jargon, have risks that are hard to recognise, and may not start to deliver benefits immediately – which makes their value less ‘tangible’.

Vulnerable clients may face additional barriers to understanding financial advice, so it’s the adviser’s responsibility to make it easier to grasp – by using clear language, ensuring thorough and direct disclosure, and enhancing customer vulnerability practices in the six-step advice process.

How to identify vulnerability and act on it
It’s important to note that vulnerability may not always be easy to spot. Its underlying factors can be culturally specific or relate to the ‘bigger picture’. Also, clients may not be aware of their vulnerability, or they might not know how to express it. Some may become vulnerable over time or due to a particular event.

That’s why it’s all the more important to have robust customer vulnerability systems in place, and be prepared to draw on them at any point in the relationship.

Using the FMA’s guidelines as a framework, here are three key areas of implementation:

  • Customer service: It’s important for advisers to consider how they interact with their clients, and the role face-to-face meetings can have in a comprehensive approach to vulnerability.
  • Capability and capacity: Advisers need to be able to identify vulnerabilities, address the needs of vulnerable customers, and adapt their services to ensure support is provided. Flexibility is crucial.
  • Communication: Clear communication is key to minimising customers’ distress, especially during in-person interactions. It’s important to note that vulnerable clients may struggle to disclose their needs. Advisers can facilitate this by using positive language (for example, without putting emphasis on ‘vulnerability’ but instead offering ‘extra help’ or ‘additional support’), or by encouraging the use of digital tools (some things may be easier to notify online, rather than in person). Also, advisers need to assess the complexity of documents and simplify where appropriate.

From a practical point of view, each adviser can support vulnerable clients in several ways, depending on the type of vulnerability involved. For example, using larger font or reading out key points can help clients with visual impairment. If English isn’t the client’s first language, advisers can consider engaging a translator or providing key documents in dual languages. And importantly, in all situations where a client might be in distress, extra care must be taken in ensuring they have enough time and support to make a decision.

It’s about good client outcomes

Financial advice – it has always been about clients’ personal circumstances, goals and needs. Now, with COVID-19 exposing New Zealanders’ vulnerabilities on many levels, financial advisers have an all-important role in the journey to recovery. At Financial Advice NZ, we continue to work with the regulator and our members to help advisers understand what this responsibility entails for their staff, their operations and, most importantly, their customers.