The ethical investment card is being pushed under the noses of IFAs as the
winds of political correctness hit the financial services industry.
In July, legislation is being brought in that will force pension fund
trustees to declare their stance on ethical investment.
Trustees are in the process of reviewing their statement of best practice.
The move is not intended to promote ethical investment but is likely to
drive consumers to the doors of advisers as they look for guidance on which
pension funds are ethical and which are not.
The demand for ethical investment is increasing. Friends Provident
spearheaded the ethical investment market with the launch of its
Stewardship unit trust in 1984 and now there is now £20bn in funds under
management in the ethical sector.
There are 31 funds on the market compared with 17 six years ago. Last
week, Autif released a consumer guide to ethical investment funds in a
response to market demand.
But despite the growth of the sector, there are still doubts about how
seriously IFAs take the ethical investment concept.
Ethical Investors Group director Lee Coates says: “IFAs are still cynical
about ethical investment but when I tell them that we have written nearly
1,000 ethical Isas so far this year their jaws drop.
“Advisers do not have to like ethical but they have to know about it
because it is good business.”
The spotlight will be shining on IFAs to demonstrate their awareness of
pension funds' statements of best practice so they can give the right
advice to ethically concerned clients. The National Association Pension
Funds says this new transparency in best practice will push socially
responsible investment up the agenda and arouse further consumer interest.
NAPF director of investment service David Gould says: “It is a fast moving
area where interest will continue to grow, particularly as the vocabulary
becomes less negative and looks at how companies should engage with ethical
issues more positively.”
Murray Johnstone head of ethical investment and investment director Andrew
Preston says: “Press coverage of the change will generate increased general
awareness and will mark a sea-change in the way people see socially
Consumer interest looks set for a further boost as “paler green” funds
come on to the market. These funds invest in companies which are not
particularly ethical but can be defined as having the best socially
responsible track record when comparing like with like.
Such products aim to offer a more balanced stock selection than pure
ethical funds and are suited to investors who are more pragmatic about
returns but would like to take some ethical responsibility.
These funds allows for a greater spread of stocks and the possibility of
higher performance compared with traditional “dark green” funds.
Friends Provident is one company launching such a fund later this year.
External communications manager
Jim Murdoch says: “With this there is no need to change either investment
philosophy or stock selection but it still allows investors to know they
engaging in socially responsible investment.”
But analysts believe it would be easier for advisers if definitions were
tighter on what constitutes ethical investment.
Warburg Dillon Read analyst John Szymanowski says: “People are very unsure
on what the term actually means. It would better if providers could say:
'We will definitely invest in this type of company and definitely not
invest in other types.'
“Also, it would help if you knew what sectors the funds will go to, for
example, if they are likely to cluster in the UK or Far East.”
Independent researcher Eiris believes ethical investment is a big business
opportunity for IFAs. It publishes a guide designed to help IFAs understand
ethical investment sufficiently so they are comfortable advising on the
Eiris head of client services Karen Eldridge says: “IFAs have no excuse to
not ask the ethical question. How can advisers claim to know their clients
if they do not know what their values are?
“A responsible IFA should always offer an ethical choice. There is a huge
demand for ethical investment. There are many more providers now, so
offering choice to clients is not a problem.”
IFAs who remain cynical about ethical investment may be in for a rude
A recent Eiris survey shows that 77 per cent of consumers would like their
pension funds to be invested ethically.
They will need to swot up on all the issues if they are going to give