As explored in previous articles, the Covid-19 pandemic has increased vulnerability within our society. However, research by the FCA, the Office for National Statistics and the Fawcett Society indicates that some groups have been disproportionately affected by the socio-economic impacts of the pandemic. This presents the question of whether diversity within financial services firms is sufficient to address and understand the disparate needs of customers.
Race and sex are particularly important factors when considering the impact of the pandemic. Women, for example, have been furloughed in greater numbers than men, with over 1.9 million women on the scheme at the end of 2020. During lockdown, women were more likely than men to be carrying out unpaid childcare and unpaid housework. They were also more likely than men to experience the wellbeing impacts of the pandemic, with ONS data suggesting that women have reported significantly higher levels of anxiety, loneliness and depression than men.
The FCA’s Financial Lives survey suggests that 38% of UK adults have seen their financial situation worsen during the pandemic, with those on low incomes and Black, Asian and minority ethnic (BAME) groups being among the hardest hit. Moreover, data from the Fawcett Society in June 2020 indicates that BAME women, in particular, have faced financial difficulties during the pandemic. For instance, some 23.7% of BAME mothers reported that they were struggling to feed their children, compared with 19% of white mothers, and some 42.9% of BAME women stated that they believed they would be in greater debt because of the pandemic, compared with 37.1% of white women and 34.2% of white men.
These figures give just a snapshot of some of the social and financial experiences that people have faced during the pandemic, but it is an important reminder of the challenges that financial services customers endure. The FCA’s recent guidance on the fair treatment of vulnerable customers sets an expectation that all firms should understand the needs of their customers and respond to them appropriately, whether this be through product design, flexible customer service or accessible communications. Arguably, it is easier to achieve this through a more diverse and inclusive workforce.
Nikhil Rathi, the FCA’s Chief Executive Officer, in a recent speech, noted that it would be questionable whether a firm could adequately respond to the needs of customers, including vulnerable customers, if there is insufficient diversity within the firm. Indeed, diversity and inclusion, is being viewed with increased interest by the regulator. Mr Rathi has asked firms to consider whether their management team is diverse enough to provide adequate challenge and whether the firm creates the right environment in which people of all backgrounds can speak up.
The financial services sector still needs to improve in respect of diversity and inclusion. For example, only 17% of people approved by the FCA (i.e. Senior Managers) are women, and less than 10% of managerial positions within financial services are held by BAME people (even fewer by BAME women).
A lack of diversity in the leadership of a firm risks creating a gulf between firms and the communities that they serve whereas diversity increases people’s understanding and appreciation of the world, its people and its problems, whether on a macro or micro-economic level. Diversity can improve communication, engender trust and develop empathy, helping bring disparate people closer together. Importantly, it allows wider perspectives to be considered and allows for assumptions and stereotypes to be challenged.
This clearly brings business benefits and can lead to healthier organisational cultures in which people better understand and appreciate their customers and their colleagues. There may be financial benefits for firms too. Research by McKinsey suggests a strong business case for diversity and inclusion, with diverse firms consistently outperforming less diverse firms, with the most diverse companies outperforming the least diverse by 35%.
Diversity and inclusion cannot be achieved overnight but we can be assured that it will remain a regulatory issue and will likely receive greater regulatory focus in the future. Therefore, it is beneficial for all firms to consider how representative they, and their management teams, are of the customers they serve, and to assess steps that can be taken to bolster diversity and inclusion throughout the organisation.