In this article Compliance Matters speaks to Howard Taylor, a senior regulatory and compliance consultant who works for Capco, the technology and management consultancy, about two topical subjects in the wealth management world.

Q: What has the FCA been doing to encourage firms to help vulnerable customers and does that apply to HNW individuals?

A: Occasional papers 8 and 17 started to shift the dial on what we mean by vulnerable customers and financial inclusion - they came in 2015. There is nothing new in the consultative paper that came out three weeks ago. Sir Charles Randell, the FCA's chairman, has stated clearly that HNWs need to be included. They struggle to understand often complex products. You might think that this does not apply to HNWs because they have recourse to relationship managers, but it's not good enough any more to say "we have an intelligent RM." Advice is often restricted for the HNW because in reality it is simply a recommendation, as managers can’t offer advice.

So, broadly speaking, in wealth management and private banking in the "vulnerable customer" space, people need to stop and start again.

Q: What forms can vulnerability take?

A: Being bereaved is one obvious one - the market might be favourable and the RM might want to exploit the commercial opportunity. You, with a bereavement on your mind, might not be ready. You might have inherited some wealth from the death that left you bereft and the RM, with the best of intentions, is trying to press you to make some investments while you are unable to make coherent decisions. At some point the bank or the wealth manager should intervene and help you. The firm might give you a repayment holiday while you get your head straight.

A lot of people think of vulnerable customers mainly as old people. I think over 65s can be very capable. I'm a wheelchir user - it's a different vulnerability. My challenge is not my understanding of the products - that's very good - but I find it hard to get about, so a wealth manager should cater for a customer like me in a different way.

When compliance officers look at suitability they usually ask "what products should be suitable for that client?" That's part of suitability, but another part of suitability is how should you service him to meet his needs. You should seek out those media that suit him. I prefer everything to be digital or electronic because writing by hand is difficult for me. I once had to apply for a mortgate on paper and had to get some one at the bank to help me sign it. Wealth managers should use various formats and have coherent plans to use them in different cases.

FCA regulations already call on wealth managers to help vulnerable customer but they're going to have to review them holistically because the FCA is hardening its stance. I think the two topics of financial inclusion and vulnerable customers go hand-in-hand and are very closely connected.

Q: Now we move on to interest rate benchmark reform. Do you see any problems here?

A: We're talking about Libor decommissioning and switching to whatever the new rate is. I wouldn't discount the importance of it. The 2021 date will force people to change the rates on their products. If the RM or investment cousellor recives the product from his product department, he might have a problem on his hands. If somebody has a contract going beyond 2021, the firm will have to change the terms in the middle of the contract and it'll have to explain that to the HNW client. If you are a wealth manager, you ought to do an impact assessment of Libor (the London Interbank Offered Rate) on your client base and work out how to communicate with them about it.

You can't necessarily avoid having a contract that goes beyond 2021. If you do have a contract that does, you are stuck with the job of changing it. When that happens, it has more of an impact on the end user than on the operational workings of the wealth management firm. It skews the customer's objectives which he formed well before he knew that Libor was going to change. He didn't go into it knowing what would happen, so all his plans are being disrupted by this reform.

Q: How do we know that the next rate won't be rigged, the same as the last?

A: We don't. We are going to have to wait for evidence that it won't.

* Howard Taylor can be reached at howard.taylor@capco.com