Placing clients, with the best of intentions, into portfolios that don’t reflect their long-term objectives or are too high risk serves no one in the long term.
Role of advice
As with all good financial planning, the starting point has to be to understand the client’s situation, their future objectives and their risk profile. Their preferences for sustainable investing and its importance versus the desire for return regardless of ESG consequence can then be layered in on top of these foundations.
Once investor preferences are understood, the adviser then needs to bring the same scrutiny to bear on the investment solutions available.
This is not an easy task. As an industry, we are still in the foothills of understanding the impact of sustainability factors on investments. The nomenclature is developing, but is not yet there and the same can be said for disclosures.
That said, the fact that measurement is now taking place is having an impact on the sustainability of commonly available funds as managers respond to increasing levels of scrutiny.
When we look at the multi-asset funds available within the most common Dynamic Planner risk levels, for example using the MSCI screen, more than 90 per cent of them are A or above.
Managers are responding to demand by managing their exposures to laggards who can’t or won’t commit to plans to transition their businesses. This is good news for the ability to achieve diversification and good returns for the risk taken for the majority of clients.
What’s the solution? For me, it’s not to let the best be the enemy of the good. When we bought an electric car, we knew the infrastructure wasn’t there yet.
But we also knew that we would be contributing to the move away from fossil fuels and that improvements in the charging network would require the push from drivers, as well as the pull from regulatory change.
The headlines and policy decisions that result from the forthcoming UN Climate Change Conference (COP26) in Glasgow are likely to cause yet more households to examine the sustainability of their choices – both of the cars they drive and of their investments. With that, the infrastructure and further global regulation to improve transparency and comparability of sustainability reporting will come.
In the meantime, we do the best with what we have and strive towards continuously improving our understanding, data and systems so we can play our part as an industry in the fight against climate change.
Ben Goss is chief executive of Dynamic Planner