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The pros and cons of SRI for advisers and clients

This article is part of
Guide to Sustainable and Responsible Investing

On downside is that SRI is a more limited investment universe, which may result in more volatile performance in some years.

However, acknowledges Olivia Bowen, director and financial adviser at Gaeia, there is a very wide range of asset classes and funds available to us these days which reduces this risk. “And the performance of these funds is often as good as conventional investment.

Most SRI funds do not charge any more than mainstream specialist funds and many advisers who explore deeper in the area find unexpected rewards from putting in the effort.

“Discussing issues like sustainability and ethics is not always advisers’ favourite topic and some advisers find understanding clients SRI needs an unwelcome extra layer of complexity,” admits Julia Dreblow, founder of sriServices.

“However to my mind this misses the point as today’s advisers need to build strong client relationships based on trust and mutual understanding.

“In finding out clients’ opinions on wider concerns, an adviser is both building a closer relationship with their client and of course identifying investment options that meet the clients’ needs.”

Ms Dreblow finds this is particularly important for younger investors, those with young families and high net worth investors.

Mike Appleby, investment manager, SRI Team at Alliance Trust, agrees, saying: “Putting the ethical question into the ‘too difficult’ box obviously falls short of knowing your client properly.”

As a result of widening the discussion, he believes the client is happy and appears more committed to their personalised investment choice.

The cons, as he sees them, are that all SRI funds are slightly different and so advisers “can’t just pick one because it’s ‘a bit ethical’ and that’s what your client wants. You may need to do a bit of research.”

This area does not fit current advice models and processes well as it requires inclusion of issues that are not normally taken into account, adds Ms Dreblow. As such it is time consuming and advisers may find it challenging to integrate.

So, while SRI investments are ostensibly investments like any other, Ms Dreblow notes that the difference is that “clients have the opportunity to express an interest in additional areas and to ask for extra considerations to be taken into account when planning where to invest, which is normally done with the help of an SRI fact-find.”

She adds that advisers may find themselves out of their comfort zone if their clients are expert in issues that they are unfamiliar with, and may fear the loss of their status as ‘the expert’.

“To avoid this I suggest advisers ask clients to do their SRI fact-find before meeting the adviser so IFA has chance to prepare, particularly if they do not want to be drawn into long conversations about SRI issues.”

Following on from the initial fact find, she suggests identifying SRI aims before combining SRI and other information.