Advisers and other professionals giving investment advice may end up being required to consider their clients’ environmental, social and governance preferences. European Commission is seeking to amend MiFID II and the Insurance Distribution Directive to make it mandatory for advisers to prove they consider these issues in their suitability assessment.
Advisers who had been providing advice on values-based investing as well as experts in the area welcome the move which they see as long over-due. Here are their recommendations for how to prepare for a change in the rules.
Lee Coates, Managing Director at Ethical Investors, says all clients would hope that governance has always been done properly.
“Most fund managers nowadays will say that they take ESG into account, but I fear that this is possibly 95 per cent on the ‘G’ and the rest on the ‘ES’. If I am right, many fund groups will struggle to demonstrate just what they are doing on the E and the S.”
“For advisers, I am not sure too much needs to be done other than to be up to speed on the sorts of issues that the fund groups are dealing with. Whilst advisers are not going to be forced into an epiphany moment and embrace ethical and responsible investment, the forced reporting on ESG should actually allow advisers to handle any questions that relate to climate change or social issues. Something along the lines of…”the fund managers have to make allowance for this sort of thing and it is on them to make sure that you aren’t going to lose money because they are investing in old, dying industries,” he said.
Julia Dreblow, a founder at ethical consultancy SRI Services, thinks that this is a welcome, if over-due development. For approaching two decades research has indicated that many more people would like to bring environmental, social or indeed ethical considerations into their investment planning than actually do so.
“Although many intermediaries are already successful in this area – many, until recently, have assumed that if a client is interested in such issues they will request it. Poor financial literacy and low awareness has however in practice meant that this does not often happen,” she said.
She says the main challenges for making these proposals a success will be around advisers having the confidence and competence to change the way they operate – so that when a client indicate an interest the adviser can act on it. This means adapting advice processes and being able to discuss ‘ethically diverse’ fund options.
“The increased interest in and urgency of climate related risk in particular mean that upskilling in this area will prove valuable as it will help advisers to forge closer relationships with their clients whilst also helping to de-risk their portfolios – and exploit growing ‘green’ opportunities” she concluded.
Advisers and other intermediaries are invited to use the whole of market, free to use Fund EcoMarket tool for information on fund strategies as well as fact finding.
Source Money Marketing