Comic Relief returns to our screens on Friday and there has never been a better time for advisers to strengthen their client relationships by encouraging them to invest responsibly, writes Tanya Pein, an IFA at In2 Planning.
On Friday 24 March, millions of people across the UK will take part in Red Nose Day, raising money for Comic Relief, including many of our clients and their families. But what if clients could help good causes all year round, via the investment work advisers do for them?
Everyone is a winner
In my experience, helping good causes is enjoyable and it is profitable, for client and adviser, and for charity clients and private clients alike. The results are delighted clients, charities acting more in accordance with their charitable mission, longer term and more trusting relationships, and investments that clients are genuinely interested in.
Advisers often claim their role is to maximise returns and let the client spend the money in line with their values, but that is not the case.
Where the return comes from does matter. For example, most clients, when asked, do not want to profit from human suffering, so would prefer that investments excluded the arms industry.
Take another common issue, tobacco. When a major cancer charity was found to have invested in tobacco companies, there was a public outcry. The charity lost donors and its reputation was damaged. This can be difficult and expensive to rebuild [indeed, in 2013 Comic Relief was also found to have invested in alcohol, tobacco and arms].
I had a charity client whose charitable mission was to reduce poverty in the UK. I integrated the question: ‘do you pay the living wage?’ into the beauty parade we held for discretionary fund managers (DFMs), and the charity was very pleased to see the DFM aligning its investment activities with its ethos.
A few months later, the outcome was that a £15 billion DFM started paying a living wage to its security and cleaning staff, and as a result dozens of families have been lifted out of poverty. The charity client was delighted. From the very start of the DFM relationship, it was fulfilling its core mission.
Responsible choice
This approach to investment has various different names. The oldest one is ‘ethical’, and newer ones are ‘sustainable’, ‘good money’ and ‘responsible investment’. The charity, pensions and investment industry call it ‘responsible investment’, linking investors and society, so I use that term.
There are two ways to judge responsible investment funds: the most profitable, and the most personalised.
With over 90 responsible investment actively managed funds, and a range of passive funds to choose from, there are some that perform very strongly. A large number of responsible investment funds have shown returns significantly above industry benchmarks for some years now.
There are funds that match directly with a client’s particular concerns, such as screening out the arms industry.
How to invest ethically
There are three basic approaches to ethical investing: screening, engagement and positive investing. You can screen out certain sectors (such as the arms industry), know that your fund manager is engaging with companies on specific topics (such as eliminating human slavery from the supply chain) and target high growth industries for investment such as renewable energy and green infrastructure.
How you allocate to responsible investment in your client portfolios is always a response to conversations with clients, and they are always interesting. I have consistently found clients appreciate that an adviser can reflect who they really are in their portfolio choices.
There is room for a huge increase in the number of advisers who are integrating a responsible investment approach, and it is easy to get started. From a compliance point of view, it shows a deeper understanding of your client’s needs, going beyond simple ‘know your client’.
You get to know your client better, for the long term, without having to wear a red nose or run a half-marathon in fancy dress!