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Green is this season&#39s black

There are more than 40 ethical funds in the marketplace and this number is set to increase dramatically. While selecting the right one may not be easy, I believe the extra effort means IFAs can add significant value.

Every client has different concerns when choosing an ethical fund manager. Some might have specific worries which will lead them to examine individual stocks within an ethical fund while others may simply want to feel they are doing something worthwhile so will only be interested in the broad focus of a fund.

The IFA must consider a number of things before making a recommendation. Establishing the client&#39s main areas of concern will be a primary objective. Having identified the no-go areas, the next step is to establish whether the client wants to favour any particular sectors.

Some may wish to have an emphasis on companies with a positive approach to environmental issues or an enlightened attitude to employee and customer relations. IFAs need to be aware that, while most ethical funds operate a mixture of positive and negative criteria, there are some which will use one to the exclusion of the other.

The more sophisticated ethical investor may have already identified companies they want to avoid within their portfolio. In these circumstances, it may be necessary to obtain a list of individual stocks held within the selected ethical fund.

Ethical funds under management have risen to around £3bn and it seems reasonable to assume the market is still in its infancy. By 2003, ethical investment is projected to reach £10bn as investors become more aware of where their money is invested and more providers offer ethical fund links across their product ranges.

The Government has also recently issued regulations ensuring that pension fund trustees disclose the extent to which they have considered ethical and social issues when establishing their pension fund&#39s investment objectives.

Take it as read that there is a growing awareness of ethical issues within the investing public and IFAs will find themselves increasingly asked to comment on green or ethical investment matters. It seems sensible, therefore, that IFAs should equip themselves with the necessary expertise in order to give considered and quality advice in this sector.

Some practices have already started to focus on this area, as demonstrated by the growing number of firms with the word “ethical” in their name.

Once considered the preserve of the “beard and sandals” brigade, the days of the stereotypical ethical investor are surely long gone. Ethical orientation is a natural constituent of the fact-finding process and essential when establishing a client&#39s attitude to risk.

Such an approach will be seen to add value to the client relationship, which can only become stronger as a result. In fact, there is a lobby for ethical questions to be a compulsory part of the fact-find process. If this happens, it will clearly have a great impact on demand for ethical investment.

Research by the Ethical Investment Research Service indicates that more than two-thirds of pension scheme members think pension funds should operate an ethical policy whenever they can do so without reducing financial returns.

If the future&#39s bright, could it be bright green?


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