What if innovation in financial services had the potential to bring about positive change beyond the world of business? What if there was a way for financial advisers to meet clients’ needs, improve public perceptions of financial advice and create a better society all in one go?
Worthstone founder Gavin Francis is already elbowing aside those “what ifs” by working with advisers to spread the word about social investment.
Social investment is a way of using investor’s capital to bring about measurable positive social or environmental change, as well as a financial return. Investments are made in companies with the specific purpose of addressing social or environmental needs, such as reducing poverty or homelessness.
This means social investment differs from ethical funds, which screen stocks based on ethical criteria or use shareholder influence to bring about positive changes in companies. It also differs from charitable donations, where clients’ money is given away to good causes rather than invested for a return.
Worthstone was established in 2012 and promotes social investment (sometimes known as impact investment) specifically to financial advisers in the UK.
Francis says social investment is a relatively new area that is gathering momentum, particularly as the Government is committed to growing it. Evidence of this is last April’s introduction of Social Investment Tax Relief – 30 per cent income tax relief for individual investors in qualifying social investments.
“We were on the Treasury working group to help come up with design and structure of this,” says Francis.
Francis feels there is a need to educate advisers about social investment and how they can engage with it. Worthstone is rising to this challenge by running the Social Investment Academy in partnership with like-minded organisations including Big Society Capital and the City of London Corporation. The Academy hosts events to educate advisers about social investment.
“The nature of the relationship financial planners and advisers have with their clients means they will be able to discuss if clients are interested in making a difference to society. People want to connect with the wider issues in society and advisers need to discuss if clients have social goals and understand them as well as financial goals. If clients have been reading about social investment and ask for information or advice on it, advisers need to have a view on it,” says Francis.
Social investment currently attracts high-net-worth clients but Francis sees no reason why it cannot filter down to the rest of the market in time.
“There is no reason why it should be limited to high-net-worth clients but it is likely that affluent clients are the early adopters,” he says.
He points out that once advisers have identified clients who have social goals, it can be difficult to know what to do next. “Advisers need help in determining which social investments might be suitable, how to find them and how to analyse them,” he says.
“How do you work out what might be suitable for a particular client and how do you go about selecting the right investment for that client?”
For Francis, the answer is to outsource the search process for social investments. “I’m not sure how viable it would be for advisers to do all the legwork themselves. They would have to pass the costs onto clients and charge a huge amount in fees, which could potentially outweigh the benefit to clients, and prevent them from wanting to get involved,” he says.
Worthstone has developed an online tool enabling advisers to search social investment opportunities and filter them down based on criteria that best suits their clients. For example, if a client wanted to put their capital to work by dealing with homelessness in Manchester, Worthstone’s facility would enable them to filter out other types of investment to focus on the selected criteria.
Francis says that to meet the requirements of financial planners and advisers, Worthstone has to be independent. “We don’t charge providers for listing relevant products. We charge advisers a subscription fee so we’re providing information to advisers funded by advisers,” he says.
Worthstone’s fees are £170 plus VAT per month for accredited and chartered firms or £210 plus VAT for others. “We think we meet the needs of 90 per cent of potential IFA firms who might want to develop this area of business,” says Francis. “A lot of advice firms come to us as referrals from our existing adviser partners – it feels like a community of advisers building something to help client needs.”