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Sense of fair play

Friends Provident socially responsible investment marketing manager Julia Dreblow says the FSA’s treating customers fairly initiative is commendable but there are still grey areas over social, ethical and environmental issues which need to be clarified.

Fairness, like beauty it seems, is in the eye of the beholder. When shopping for food, customers can chose between Fairtrade and “normal” coffee, organic or pesticide enhanced fruit and vegetables and even when buying a car, its fuel consumption and emission levels are clear. Green and ethical options are highly visible for customers to take or leave, as they wish. But the financial services sector is very different.

Not only do the clients of financial services firms have to make major, long-term decisions, they generally start from a pretty low base in terms of financial literacy. While less than ideal – and it would be preferable if this was not the case – as long as people’s needs are diverse in the extreme, solutions will be, too. Ever changing legislation and tax regimes do not help but in essence that is why advisers exist – to guide clients through the labyrinth.

The FSA’s treating customers fairly initiative is commendable. It is rightly high-level, not overly prescriptive and can pretty much be slotted in to “business as usual”, as intended. Let’s face it – customers should be treated fairly anyway.

Yet what constitutes fair depends on any number of variables. One variable might be around personal values. Making it easy for a person to purchase the financial equivalent of “Fairtrade” or “organic” may sound novel but surely this should be as easy in financial services as in any other industry. TCF, however, takes no stand on this.

Correspondence between the FSA and the UK Social Investment Forum – the membership organisation which promotes socially responsible investment – clarified that the regulator believes consumers should request advice on ethical investing, if that is what they want.

While flattering for the SRI, this is optimistic in the extreme. Most people probably do not really know what a fund is before they invest in one so the chances of them knowing you can have green or ethical versions is pretty unlikely.

UKSIF’s recommendation to the FSA was that there should be occasional guidance offered suggesting that the industry should help investors to reflect their social, ethical or environmental values in the way they invest, when appropriate.

The reason being that to do otherwise would leave the industry open to criticism – and be a missed opportunity. After all, it is not rare to come across people who are concerned about climate change, support Bono and Bob Geldof’s work in Africa, recycle newspapers or are genuinely impressed with the efforts of companies such as Marks & Spencer, for instance, which has just announced a £200m “eco-plan”. And for such a person to be unaware that their money is invested without any ethical consideration could lead to a potential complaint case.

Indeed, some well-known NGOs have been involved in raising awareness of the importance of ethics when it comes to investment in the past and there is also the relatively new organisation, FairPensions, which is approaching pension members about this – indicating a trend that is unlikely to recede.

Clearly, ethical funds will not be right for people all the time. For a start, they are largely equity-centric and, for instance, there is only one fund in the protected/guaranteed sector. While it is unlikely that the industry will face an immediate backlash, why should the financial industry keep its customers in the dark when other business sectors do not?

Given their importance, it would bring welcome clarity if the FSA issued balanced guidance on this area in order to be fair to investors who do care about social, ethical and environmental issues. However even if this does not happen, all is not lost.

A recent major development is the publication of the December 2006 Pensions White Paper which has a section on social, ethical, and environmental investment. It comments that SEE should be made available by pension schemes.

The new international standard (ISO 22222) on the competencies of a personal financial planner may also be key. Following dialogue led by Taunton-based IFA Robin Keyte, working alongside UKSIF, the new BSI Kitemark makes reference to this issue. It requires any adviser wishing to use the soon to be coveted BSI Kitemark to show that they consider whether or not social, ethical, environ-mental or religious issues are important to a client. And closer to home for some perhaps – adviser exams also now include sections on socially responsible and ethical investment approaches.

The challenge for existing advisers will be to acquire sufficient skills to advise with confidence. The leading solution in this respect is the UK Social Investment Forum, which offers an adviser toolkit (see and is also working on an online adviser CBT course. This includes a 24-page technical guide and example supplementary fact-find questionnaire, one of which was provided by a specialist ethical adviser, Lee Coates of Ethical Investors Group.

For those who are more enthusiastic about offering ethical solutions to new and existing clients, there is also the IFA membership body the Ethical Investment Association, which runs quarterly training days. In addition, there are IT-based solutions such as those offered by Ethical Screening Ltd and Eiris as well as an ethical module available from Synaptic Systems.

So while fairness may be subjective, what advisers can do about this is pretty clear. Start the ball rolling by thinking about the emerging opportunities, do some background reading and consider whether or not you might wish to apply for the new BSI Kitemark or advise on pensions in the years ahead.

You may then want to think about how you position yourself or your company. If appropriate, list ethical investment as an area you can advise on with IFA Promotion, join UKSIF and/ or the EIA. Advisers can even speak to some product providers and research providers about the ideas and services they offer. After all, the future is looking very bright indeed, with green lights on the way.


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