National Ethical Investment Week has inspired me to write about one of my clients who has specific requirements about socially responsible investment. This is a fascinating area, especially for someone like myself who has been involved in advising clients on SRI for 17 years.
The very beginnings of advice in this area were largely to committed people who led very ethical lifestyles and held strong views about their investments. The area has broadened out a lot since then, attracting more investors into SRI funds. Last year, 15 per cent of retail sales were placed in ethical funds compared with less than 5 per cent the previous year.
Big global issues such as climate change have encouraged people to think more about where their money is invested.
I saw Sophie towards the end of last year when she came to me with specific requirements for ethical investment. She had two portfolios, both of which were held offshore for various historic reasons. Neither fund manager was committed to SRI.
With one of the fund managers, she accepted that her portfolio was managed conventionally. However, she had engaged with the other manager and insisted that it incorporate some SRI criteria, which it grudgingly did.
However, changes in circumstances meant that she now wanted to rationalise the portfolios and appoint an ethical fund manager to run them. She felt it was an uphill battle to persuade her current managers to fall more in line with her views and she wanted a sympathetic ear.
More than this, she felt that a specialist SRI manager would present her with opportunities that she had not previously considered, making life more interesting and less of a hassle.
Sophie had done all the right things and seen a range of advisers who she might like to work with and I was delighted when she asked us to take on the work for her.
Our first step, having taken a financial brief from Sophie, was to delve further into her risk profile and look at her SRI requirements. We have a special fact-find for this, enabling clients to specify their areas of greatest concern. It also tells us the degree of concerns they have and allows them to put forward views on any issues.
When a client completes our social issues questionnaire, a discussion takes place so they realise that the more restrictive they are in terms of criteria, the narrower the selection of investments is going to be. Combining the social issues questionnaire with the risk profile is very important. Fortunately, Sophie came out as a medium to highrisk investor which complemented the concerns she had on the social issues questionnaire.
We approached a number of specialist SRI managers and asked them to come up with suggestions on portfolios. Having done this, it was clear that two propositions were outstanding. Both would be suitable for Sophie.
It was a real pleasure to hear the joy in her voice when she had two strong candidates coming to the fore to manage her money. There was relief also at her finding kindred spirits who would not only manage her money well but also understand what she wanted to do with it.
It was quite difficult to make the choice between the two propositions. One was darker green and more adventurous while the other had some flashes of unusual investments but was deemed to be in a safer pair of hands. Both fund managers had excellent ethical credentials.
In the end, Sophie chose the safer pair of hands. I think this was the right decision, as her money is critical in terms of her financial wellbeing. If she had bigger sums to invest and some surplus, she could have chosen the alternative, as she could have foregone some of the potential capital security to opt for some spicier investments.
The work then involved transferring the portfolios. As the advice to her was essentially given over two tax years, and taking into consideration the changes in capital gains tax, we had the luxury of engaging her accountant to calculate whether the transfer would be better off made in last tax year or current tax year. In her circumstances, it was better to make the transfer this tax year, so that gave us more time in terms of consideration of a portfolio.
Sophie is delighted that she now has a specific SRI fund manager and and adviser who understands this terrain. At last, her money is being managed as she wants it to be.
Amanda Davidson is a director of Baigrie Davies