Ethical Investing 

Ethical investment demand outstrips adviser interest

Ethical investment demand outstrips adviser interest

Financial advisers may be seriously underestimating demand for responsible investment, after research showed wide discrepancies between adviser and consumer attitudes to investing ethically.

A survey by Aviva found that 81 per cent of financial advisers believed that fewer than 10 per cent of their clients had a genuine interest in the issue.

This figure was in stark contrast to a consumer survey, also conducted by Aviva, that found around half of consumers took ethical issues seriously when considering whether to use a company's products.

Consumers rated labour rights and animal cruelty as the most important ethical issues, while weapons, tobacco and gambling were the least important.

Advisers, on the other hand, belived their clients would rank weapons manufacturing, gambling and tobacco at the top of the list, with labour rights towards the bottom.

Advisers also appeared to significantly underestimate consumers' concerns about climate change.

This adviser survey also contrasted to a poll carried out last year by the UK Sustainable Investment and Finance Association (Uksif), which found that 60 per cent of people agreed it was possible to get good returns whilst investing ethically and responsibly.

Forty-three per cent of respondents, meanwhile, said they wanted some thought to be given to "making a positive difference to the world" through their investments, while 63 per cent said they wanted ethical investment products to be clearly labelled. 

Uksif chief executive Simon Howard said this demonstrated there was "latent interest" in responsible investment, representing a "huge potential market for advisers to target".

Addressing the common assumption that ethical investments guarantee lower returns, Mr Howard pointed to research by Deutsche Bank in December 2015 that contradicted this view. 

The research found  that, since 1970, 2,250 studies had been done on the correlation between environmental, social and governance (ESG) investment criteria and corporate financial performance.

The "overwhelming" majority of these studies found ESG factors improved performance, while only 10 per cent found a negative correlation. 

John Ditchfield, a partner, financial advice at Castlefield and chair of the Ethical Investment Association, said advisers must move beyond the simple question, "Are you interested in ethical investing."

He said: "Very few advisers bother to ensure they are well-informed on this sort of investment," adding that "most portfolios" were completely ignoring trends like global warming. 

Robin Keyte, director of Keyte Chartered Financial Planners, said the persistent niche nature of ethical investment was down to “mutual ignorance".

"Most IFAs don’t believe their client want this, but they don’t necessarily ask their clients. And from the client’s perspective, they aren’t aware that ethical products are available," he said.

“If you look at it over the medium to long term, there isn’t much of a performance cost. However people would see a difference in performance in the short term.”

One reason for this, he said, was that ethical screens often exclude FTSE 100 companies, meaning performance tends to be out of sync with the most commonly-used indices.