A perfect storm of rising prices, interest rate rises, and potential for tax increases is creating what is being widely referred to as the cost-of-living crisis within the UK, writes Harry Hughes
Charities have said that the real term impact on people is pushing many into serious financial difficulties, with up to a quarter of adult renters struggling to keep their homes warm and some even risk homelessness. It is vital that the financial services sector looks at what can be done mitigate the risk of customer harm.
Customer communications and signposting
Customers need to understand that they are not alone when experiencing financial difficulties and that help is available. A lot is known about the stress of being in debt or going through negative life experiences, like the loss of a job. Financial difficulties can have a profound effect on an individual’s mental health, and this may make it harder to ask for help. For these reasons, firms should review how they encourage contact from customers and question whether there are ways to improve that may increase the likelihood of pro-active customer contact.
Creating pages specifically relating to the cost-of-living crisis may be valuable as customers search for assistance online. Firms should have confidence that customers with money worries are able to easily find the right resources for them when it comes to their banking, lending, or other financial service. This includes through digital channels such as websites and apps, as well as physical locations such as branches. Letters should also make it clear how to access help.
But good communications go beyond simply providing contact details. There should also be information that explains why making contact is valuable, for example, that firms can work with the customer to look ahead and create sustainable solutions to any financial difficulties.
By signposting to relevant third-party organisations, firms can also improve the likelihood of customers getting the help they need. This is important especially when the concerns of the customer go beyond the scope or expertise of the firm.
During call listening and other monitoring exercises, the LSB has heard examples of signposting that is delivered but is provided at an inopportune moment or is not adequately explained.
By positioning signposting at the most relevant moment of a call or other customer interaction, advisers can increase the likelihood of that information ‘sticking’ with the customer. For example, if a customer is discussing their worries about being evicted from their home and they do not know what to do, signposting to Citizens Advice at that moment would be more impactful than doing it at the end of the call.
Firms should consider whether there are additional organisations that could be used for signposting during the cost-of-living crisis. For example, it is possible that customers are affected by increases in their energy costs: Ofgem has a page that explains to customers how to get help from energy providers and the rights available to them.
Policy, processes, and staff training
Firms need to have a well-designed and effective financial difficulties policy and process in place. To best support customers, the first line needs to work within a set framework of when to offer forbearance, signposting, or other help.
However, advisers also need to be able to respond to individual situations and this will sometimes mean having to act flexibly rather than being hamstrung by an overly process-driven approach.
Escalation points, where advisers can seek assistance from management or other support, should be readily available for when a customer’s situation does not fit the process or when the adviser is unsure how to proceed.
Policy and process documents should be subject to regular reviews to ensure both accuracy and efficacy. Having named individuals or departments responsible for these reviews minimises the risk of reviews being missed. The outcome of reviews, for example, suggestions on how changes could improve the journey, should be reported to the relevant part of the firm.
Firms should also regularly review their training to check that it reflects the current practice and is delivered in a timely and recorded manner. At a time where cases of financial difficulty may rise, it is especially important for firms to have confidence in the training their staff receive.
Training needs to be regularly reviewed to ensure it is up to date. In a period of hybrid-working, with some in the office and other colleagues at home, it is especially important to make sure that staff are receiving the training they need.
Finally, first line customer staff and other colleagues do not live in a bubble but are impacted by the same events as customers. This means that as firms think about how to adapt their services to mitigate the risk of customer harm, similar thought should be given to staff. There are many ways to do this, including having open communication and information available to staff about the help that is at hand.
Income and expenditure assessments (I&Es)
I&Es are a crucial step in establishing affordability when discussing options for those in financial difficulties and will be an important tool when working with customers negatively impacted by the cost-of-living crisis.
By creating a clear picture of the customer’s financial situation, it is possible for both the customer and the firm to look ahead and put in place sustainable and effective solutions. I&Es are not easy to do and require both diligence on the part of the adviser and honesty and engagement on the behalf of the customer.
Firms will have set out the structure in which an I&E should be completed, and this may likely follow the Standard Financial Statement (SFS).
The SFS ensures that the most standard forms of income and expenditure are recorded, however, along with the format, it is the way the I&E is delivered that is crucial to get a good view of the customer’s circumstances. This requires advisers who understand the need to actively listen, ask probing questions when required, and sell the benefits of engaging with the firm.
To do this, staff need to be trained in the skills needed to have effective conversations. Such training should not be process-driven but outcomes focused, with staff recognising the end purpose of the I&E and the need to get a full picture of the customer’s finances.
How voluntary standards can help
The voluntary Standards of Lending Practice, overseen by the LSB, requires firms to ensure that the risk of financial difficulties is minimised by taking steps throughout the product and service lifecycle, from design through to account management. When interacting with a registered firm, customers should have confidence that they will be dealt with empathetically and in a responsive manner.
Harry Hughes is Senior Insight Manager at the Lending Standards Board