It’s not just poor people who are vulnerable when it comes to financial services – we all are

Take the salesman for Lloyds who ended up flogging himself a life insurance policy he couldn’t afford, and doing the same to members of his family. He unwittingly became the star of one of the disciplinary notices issued by the FCA

Andrew Bailey, chief executive of the Financial Conduct Authority (PA)

How do we define “vulnerable”? It would appear to be reasonably simple. The elderly, people with disabilities, the poor. All these groups fit neatly into that category. Boxes ticked, job done.

The trouble is it’s not just these groups that could be considered as vulnerable when it comes to dealing with financial matters.

Andrew Bailey, the boss of the Financial Conduct Authority, seems to recognise this fact. His consultation on “redefining” the watchdog’s role is a largely pointless exercise. However, the chapter he devoted to the protection of vulnerable consumers, which is something any civilised society should want to do, is worth a second look.

It recognises that a lot of people who might not normally be considered as “vulnerable” can become so when transacting with the financial services industry, or the sizeable corps of rogues that operate on the fringes of it.

Wealthy people with substantial pension pots are given as an example. They may seem to have it made in a country where more than 16 million people have savings of less than £100.

But they are acutely vulnerable to conmen and scam artists, particularly in the wake of George Osborne’s “pension freedom” reforms that removed the requirement on them to buy an annuity from an insurance company. Retirees with large sums of money to invest are manna from heaven to those scam artists, whose activities can leave their victims in one of those groups I mentioned more traditionally considered as vulnerable: the poor.

The FCA is right to prioritise the protection of the poor, and of other traditionally vulnerable groups but it is also right to question whether it is doing enough and taking the right approach when it comes to protecting the, shall we call them “non traditionally vulnerable”.

However, it has missed a rather important point with its consultation.

The “non traditionally vulnerable” is a much larger group than the FCA thinks it is: just about everyone is vulnerable when it comes to dealing with the financial services industry that the FCA regulates.

There is a profound power imbalance between the financial product provider and the customer.

The services provided by the former are often essential, or near to being essential. And yet the contracts that underpin those services are typically full of small print; densely written legalese that it is hard for even relatively sophisticated individuals to decipher the meaning of.

Buy the wrong product and it can sometimes be years before you realise it. This isn’t like buying even an expensive PC and then deciding that what you really needed was a Mac. Your PC or Mac will still work, even if it’s not suitable. It won’t leave you massively out of pocket like some savings and insurance products I could mention.

The financial services industry has too often seen its customers as marks to make money from, rather than as partners to make money alongside, and to whom it has no duty of care.

The rarely read risk warnings that accompany long term savings products, for example, amount to it saying: “We’re going to put your money in a basket of stocks and shares that we’ve picked out. We hope they’ll do well, but we’ll still charge you if they don’t. If it all goes wrong and you lose a lot of money, or you’ve gone and bought something you never should have, you’re on your own pal. Did you not read the risk warning?”

Even the industry’s own workers, who ought to know what they’re doing, can find themselves in the “vulnerable” camp.

Take the salesman for Lloyds who ended up flogging himself a life insurance policy he couldn’t afford, and doing the same to members of his family. He unwittingly became the star of one of the disciplinary notices issued by the FCA.

If there is one person who should know all about the dangers inherent in buying the wrong financial product it should be a life insurance salesman. And he may have done so, but he felt he had to make the sale to hit his targets.

He was vulnerable to a flawed business model operated by a financial institution, a target driven sales culture that pushed those working in it to make sales by whatever means necessary. He also subsequently became poor: He lost his job. Other people have lost their savings through dealing with people such as our hapless salesman.

If Mr Bailey really wants to create a mission for himself at the end of his consultation he could do worse than investigating ways to redress the balance between the consumer and the providers of financial products so that they are a little less vulnerable. That would make his job of protecting the really vulnerable somewhat easier.

The difficulty is that he’d need the buy-in of the industry to do that, and the industry is far more interested in moaning about regulation than it is in cleaning up its practices so that it might need less of it. Even after all the record fines and “sorry scandals” that Mr Bailey says he’d like to move beyond.