Investing in ethical funds has become increasingly popular over the past few years, with more clients requesting their investments and pension funds be ethically screened, according to advisers.
Three advisers Professional Adviser spoke to said there was a growing interest from clients – particularly younger ones – in where their money was invested and the impact it was having.
Informed Choice managing director and IFA Martin Bamford said when his firm started offering ethical options just one or two clients per year were interested in the products, whereas now he sees between two and three enquiries per month about them.
“The interest has grown in recent years. It’s something people are becoming more aware of as time goes on and they are more conscious of what is happening in the world around them and what impact their investment is having,” said Bamford.
At Informed Choice, every client is asked whether they have any ethical, socially responsible or sustainable investment criteria, and those who express interest are given a more detailed questionnaire that delves deeper into the topic, he said.
Bamford said a favourable fund among clients was the Royal London Sustainable Leaders fund, although he stressed the process was very personal for each individual.
While he said those interested in investing ethically tended to be younger, there was “no stereotypical client”.
Ethical investing is a broad term used to describe allocating funds to companies considered ‘ethical’. This can mean anything from avoiding companies who make money through selling alcohol or tobacco, to investing only in companies that promote sustainability.
IFA Peter Matthews also started to offer ethical options at his firm Jacksons Wealth Management two and a half years ago. He said he had seen a growing interest from clients in the products, although he cautioned this was “not especially noticeable” and “the numbers don’t suggest we’re getting inundated”.
Like Bamford, Matthews said discussing an ethical option was part of his fact-finding process. Clients that are passionate about the issue tended to volunteer the information, but in general people do not tend to think about it unless prompted, he said.
However, Matthews cautioned that ethical investing was not without its risks: “Whenever you narrow your available options you increase the risk,” he said.
“That often leads to a conflict in clients. By definition an ethical portfolio is going to be higher up the risk scale, but it depends how green you go – there are degrees of ethical investing, there’s a slightly hands-off avoiding bad stuff approach, and there’s encouraging good stuff – for example you can avoid tobacco or you can exclusively invest in companies that promote sustainability,” he explained.
‘Niche but growing area’
IFS Wealth & Pensions director and IFA Ricky Chan was in firm agreement with Bamford and Matthews, also explaining that appetite for ethical funds had increased among his clients, particularly the younger ones, over the past couple of years.
“It’s a niche area but clients are definitely becoming more aware of socially responsible investing. It’s an area that we’re growing in and we think demand is definitely going to be increasing,” he said.
Similarly to the others Chan said if a client has not already specifically voiced an interest in ethical investing, the topic is brought up in the first meeting as “it is important we take into account ethical considerations.”
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