Ok, if that is what clients want and you have opened the conversation about the topic to learn if they wish to explore their options for sustainable investment (does anyone seriously imagine that unethical investment is sustainable?), what should I do next?
There are two areas to consider: a personalised bespoke approach, or a managed portfolio service.
Looking at the first option; find (or design) a questionnaire that allows you and the client to explore their ethical and sustainable beliefs.
I recommend completing this with the client, and doing so in a relaxed and conversational manner. Giving clients forms of this sort to complete on their own often results in two outcomes:
- They tick every available box in connection with both positive and negative criteria, which makes fund selection difficult, and fails to provide an insight into the issues that are of greatest importance.
- Clients feel they will be judged and therefore apply more strict criteria, or they don’t realise the unintended consequences of ticking a particular box. The most common example is clients who indicate that they wish to avoid tobacco retailers (imagining this to be tobacconists), not realising that they are thereby excluding all supermarkets.
Accurate picture
As there are many shades of ethical and sustainable funds it is really important to gather an accurate picture of what really matters most to the client, and in both the positive and negative spheres.
It is also important to explore their views on their feelings about the balance between a fund that applies very strong positive impact processes, but within which there might be minor negative issues - does the positive outweigh the negative?
For many clients, after more than 30 years advising solely within this arena, we know that this is the case.
One area where there is very little wriggle room, and one that must be assessment accurately as a consequence, relates to animal welfare, particularly in relation to animal testing.
For some clients this is their most important issue, and it can even override other considerations.
There is an inevitably significant impact upon the available options with this approach, both within the MPS and bespoke areas, but it is vital that this is not used as a justification for not exploring the issue.
To balance this statement, it is also as important to make sure that clients are aware of the potential for increased volatility that will arise, and also to make sure that they are not being stricter than their own lifestyle suggests.
Having examples of the sorts of companies that might be excluded by the strictest interpretation, and the human health benefits that can arise from experimentation, will help to inform the discussion and illustrate a sympathetic understanding of the subject.
Having completed the questionnaire, find an online tool that will allow you to match criteria to funds.
Luckily for me, I happen to be the managing director of Ethical Screening, and we not only have our own tool for just this purpose but, through the generosity of sponsors, this is free to use for anyone registered with the FCA in the UK.
