Intergenerational Wealth CPD course  

How to incorporate responsible investments into recommendations

This article is part of
Guide to intergenerational wealth tools

He adds: “From an adviser point of view and being able to retains assets under management through the generations, as opposed to risk losing the mandate on the estate to a more responsible-looking adviser, a bigger conversation with beneficiaries in mind can be had. But there is also the educational aspect in that future returns may well be found in firms that are acting more responsible than others in their behaviour. So, conversations around responsible investments can be with not just beneficiaries in mind, but can also meet the need for achieving greater returns.”

Ethical investments growing

There is little doubt that responsible investments are on the rise in general.

Figures published from the Investment Association in November last year showed responsible investment funds saw net flows of £7.1bn in the nine months to September last year – 275 per cent more than the £1.9bn measured in the first three quarters of 2019.

Interestingly, Kenny says this has translated well within the inheritance planning market thanks to a multitude of factors, including a shift away from corporate greed. 

He says: “Some wealthier people are wanting to give back and certainly being seen to behave badly is met with short shrift these days as corporate greed is now a complete turn-off.”

However, there are pitfalls to the market, as the term ‘responsible investing’ is open to interpretation, which can be difficult to manage for the intergenerational wealth transfer market – especially if there are many beneficiaries.

Neil Jones, tax and estate planning specialist at Canada Life, says this can be an issue when creating a trust that is to be used for estate planning, as the guidance needs to be very clear and unambiguous. 

Requesting investments that consider environmental, social, and governance factors can be open to interpretation and different people will have different opinions on what is socially responsible and what is not. 

He adds: “This could lead to a difference of opinion between trustees and the expectation of the settlor and beneficiaries.”

However, when a trust is already in place then another potential hazard is managing expectations of multiple beneficiaries. 

Jones says: “If the trustees approach a beneficiary or the beneficiary requests a socially responsible approach, then the trustees will need to consider the potential impact on any returns that may arise from narrowing the range of investments available.

"If there are a number of beneficiaries, then each may have different feelings as to what is socially responsible and although the trustees will not be legally bound to adopt them, trying to fulfil requests like this from a number of beneficiaries could create a dilemma and, potentially, conflict between all parties.