Some might be wedded to the view that you cannot make money through ethical or socially responsible investing; that to profit you have to at least be prepared to compromise your principles.
Not surprisingly, Castlefield partner, financial advice, John Ditchfield – winner of the Responsible Investment Adviser category at this year’s Unbiased Media Awards – strongly disagrees.
He says: “To say that an ethically screened approach won’t make money is ridiculous. It could be a route for advisers who can’t provide advice in that area to close down the conversation.”
Ditchfield believes there is considerable un-met demand for advice on ethical and responsible investments, and points to evidence which shows responsible investment can deliver a compet-itive financial return. For example, FE data shows the Kames Ethical Equity fund outperformed the FTSE All Share by 15.3 per cent in the five years to 28 February.
Over the years Ditchfield has seen interest in ethical investment increase. However, he does not consider it to be mainstream.
“Responsible investment has been established long enough in the UK for people to be more than aware of it. The market is growing and becoming more sophisticated as new types of funds and products emerge. Some of the principles around governance issues and environmental impact have found their way in to the mainstream but I don’t think it is mainstream in itself. Many managers are still wary of the idea of ethical screening.”
Picking the right funds for the right clients
The responsible investment market covers a wide range of approaches from negative screening to engagement and impact investment. With around 90 investment funds that have an ethical or socially responsible objective, the skill of advisers like Ditchfield is to find which one works for each client.
“There is no one model for how an ethical or responsible fund should work; there are subtle differences between every one of them. We have a wide ranging discussion with the managers about their values and concerns. We have conversations about armaments, cigarettes and other areas that are likely to be excluded.
But we also look at positive criteria – investing in energy efficiency, renewal energy and other areas the client likes to support – and impact investing. There is evidence that engagement with businesses on environmental, social and governance issues can have a positive effect.”
Ditchfield’s interest in the responsible investment arena has its roots in his university days. As a student he was involved in environmental groups and campaigns to end third world debt. He then worked in the development of credit unions – co-operatives that provide loans and savings accounts to their members.
“I found this work interesting but wanted to be involved in something a little more entrepreneurial. As co-operatives, the ownership of credit unions are with the members; it is not possible to own a credit union or have a significant share in one.”
“There is no one model for how an ethical or responsible fund should work; there are subtle differences between every one of them.”
Breaking the mould
Ditchfield decided to become an IFA but found himself a square peg in a round hole.
“I was with a small advice firm based in Wimbledon but I struggled with the organisation’s sales culture, as there was no commitment to ongoing client service. This seemed wasteful as the firm needed to continually search for new clients.”
The experience was frustrating for Ditchfield, as he could see the transactional model the firm operated was broken and unlikely to last, but was unable to do anything about changing it as the senior managers had no interest in doing so.
It took a move to Barchester Green – an advice firm specialising in ethical investment – for Ditchfield to feel comfortable.
“Barchester Green was a good place to be an adviser. It had a bias towards responsible investment and its culture allowed for ongoing client service.”
In 2014 Barchester Green was acquired by Castlefield Capital, which already owned ethical advice firm Gaeia. “At the time of the merger, Barchester was doing well and had grown quite rapidly in terms of adviser numbers and assets under advice. It had managed to attract a high profile client list. But the board lacked the experience and depth of knowledge to really lift the business any further.”
After the merger Barchester Green and Gaeia rebranded and now fall under the Castlefield name.
A small pot solution?
Outside his day job, Ditchfield maintains an active interest in the ethical investment arena, and is currently co-chair of the Ethical Investment Association.
“I have been a board member with the UK Sustainable Investment and Finance Association, I continue to support the Ethical Investment Association and most recently I have been involved with the development of the Social Stock Exchange.”
At Castlefield, Ditchfield is focused on client work, keen to help with the development of a review process that meets clients’ expectations of ongoing service. It looks set to be a busy year for both Ditchfield and the firm as it focuses on its authorised corporate director service, as well as plans to launch a best of breed ethical fund and hitting a growth target of £1bn in assets under advice.
Mindful of the industry debate about robo-advice helping to plug the advice gap where cost is an issue, Castlefield is also busy with its telephone-based Investment Advice Service for individuals with smaller investments.
“We are resigned to the fact that some clients are priced out of the market with fees and the cost of onboarding clients. The firm launched the offering in response to the fact that we get a lot of enquiries from people with smaller pots. We want to be able to offer them advice via over-the-phone services.”
What is the best bit of advice you’ve been given in your career?
Failing to plan is, in effect, planning to fail.
What keeps you awake at night?
My dog has a habit of getting into barking contests with the local foxes – other than that I sleep very well.
What has had the most significant impact on financial advice in the last year?
Pensions and retirement planning continue to be very complex areas for most clients, in particular; tapering of the annual allowance and the reduction in the lifetime allowance.
If I was in charge of the FCA for a day I would…
Work to make the advice process less costly to deliver. I believe there is a very significant advice gap where individuals are deterred from taking advice because they feel it is too costly. Often it is those individuals who have most to gain from taking advice.
Any advice for new advisers?
Look after your clients.
2014-present: Partner, Castlefield (formerly Barchester Green)
2013-present: Admissions panel member, Social Stock Exchange
2012-present: Co-chair, Ethical Investment Association
2012-2015: Director/board member, UK Sustainable & Investment Finance Association
2003-2014: Director, Barchester Green
1995-2003: Credit union development manager, Single Regeneration Budget