• Consumers & Advisers
• National Ethical Investment Week
• More for Consumers
• Tools for Advisers
• Course for Financial Advisers
• Introduction
• Step 1
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• Step 3
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• Appendices
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• Ethical Fact Finds
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Advisers should be raising the issue of green and ethical investment in the fact finding process with all clients as a matter of course.

In order to 'know your client', advisers undertake some form of fact finding. This enables an adviser to explore the client's personal objectives and concerns. As such, the initial fact find should include an open-ended question about whether a client is interested in integrating social, environmental and/or ethical concerns into their financial decisions. There are numerous wordings that can apply, but one used by some advisers is:

“Would you like any social, ethical or environmental issues to be taken into account when looking at your investments?"

The aim of asking this question is to allow an adviser to decide whether or not they should look more closely at this subject with a client. This is the essential first step towards getting involved in this area.

There are several different ways to raise the issue of green and ethical investment. But it is normally less productive to ask a closed or leading question, such as:

“Do you want ethical investments?"

Some clients have not heard of ethical investment or may not have defined themselves as 'ethical investors', even if they do have concerns about issues like the environment or are interested in the business opportunities that social or environmental challenges may offer.

There are several very strong commercial and other reasons why advisers should offer their clients the opportunity to buy green and ethical investments.

If you do not already ask an ethical fact find question, you should consider the following:

• Does your current fact finding process tell you everything you need to know about your clients?
  
  
• Can you give appropriate advice if you have not asked clients about their personal values and interests?
  
  
• If you are competing with other advisers for a client, is there any disadvantage to being the only one who asks an ethical fact find question? Would you have a competitive advantage if other advisers raised the issue of the client's values or beliefs regarding green and ethical issues and you did not?
  
  
• How might your clients feel if they learned about green and ethical investment from a source other than you?
  
  
• If a client returned to you after six months saying that the investment you sold them was inappropriate because they should have been offered a green/ethical investment fund, what would you say and what action would you take?

These aspects are explored further below.

There is currently no strict legal obligation for advisers to offer green and ethical investment advice, or for product providers to offer green and ethical investment.

However, every financial adviser has an obligation under the FSA conduct of business rules (COB) to know their customer. As a financial adviser, the FSA also requires you to treat customers fairly. These are broad principles, but understanding the needs and wishes of your clients, and not ignoring any ethical concerns they might have, would seem to be part of the process of providing appropriate advice.

You should not pre-judge client views and attitudes.

Some advisers take the view that 'our clients are not interested in this type of investment'. Opinions regarding who might be a stereotypical ethical investor are not hard to come by. But while it may be simple to recognise some of the people who are interested in this area, there is a growing recognition that it is not easy to spot everyone who could potentially be interested in green and ethical investment.

It is not safe to assume that all of your clients share exactly the same views and assumptions as you, their adviser. Even if your views are generally aligned, it is highly improbable that they are identical, especially regarding such matters as society, the environment or ethical issues.

It is also not safe to assume that a client's attitudes remain fixed over time. People change their views, as we can see with the rising interest in such issues as global warming. So when reviewing a client's portfolio and revisiting the fact finding process, it is important to check their attitude to green and ethical investments, even if they expressed a view about them last time you spoke.

A survey (2) in 2003 found that there were no substantial age, sex, geographic or socio-economic differences between responsible investors and other investors. Anybody might be interested in green and ethical investment, and it is not possible to make assumptions without asking.

Some people who have concerns about environmental or social issues have strong opinions. Unless you ask about, recognise and note a client's interest as part of the fact finding process, you are unlikely to know that you are dealing with a person with such opinions, and you could risk giving inappropriate advice. Clients who fall into this group may even move to specialist 'ethical' advisers once they find out that green and ethical investment exists.

The failure to ask an ethical fact find question is unlikely to trigger an immediate complaint, but if an adviser has failed to ask the question, it may lead to one further down the line.

As interest in social, ethical and environmental issues increases, the scope for complaints must therefore also be likely to increase. In this vein, it is worth noting that the Financial Ombudsman Service has received training in this particular area.

Advisers who do not explore with their clients whether they would be interested in green and ethical investment are increasingly likely to be missing valuable business opportunities. The ability to understand and discuss the main issues surrounding green and ethical investment can give you an important competitive edge.

There is a great deal of evidence that a large and growing number of people are interested in green and ethical investing.

Recent market research (3) has found that:

• Just under half of the public want to invest ethically, and just under one in five would be prepared to see some sacrifice in their investment returns in order to invest ethically.
  
  
• About nine out of ten people questioned believe that it is important for companies to take social, ethical and environmental issues seriously.
  
  
• Under half of those questioned were aware of the existence of green and ethical investment funds.

An increasing number of people are looking for advisers who will advise them on green and ethical investment (4).

There is also substantial and growing media interest in green issues, such as global warming, which both reflects and stimulates public interest in such matters.

Potential green and ethical investors include:

• Those investors who have already started to invest part of their funds in green and ethical investments or are looking to invest more in ways that are consistent with their beliefs. Such clients are actively seeking advice in this area.
  
  
• The even greater number of investors who have taken an interest in buying ethical products (eg Fairtrade products, where Fairtrade has 20% of the UK ground coffee market (9)), but have not yet considered applied this interest to buying investments and financial services.

Advisers have found that the benefits include:

• Improved relationship with existing clients If a client considers that their adviser is taking into account their values and proactively taking an interest in them for more than just their money, they are much more likely to want to do business with the adviser again.
  
  
• Increased referrals Clients are more likely to be happy with their investments if these are aligned more closely to the rest of their personal values. This regularly translates into increased referrals as well as good client retention.
  
  
• Protection of the existing client base Offering green and ethical investment can protect against increased competition from other advisers. IFA Promotion reported in August 2006 that 840 (10%) IFA Promotion member firms included a focus on ethical investments, compared to 633 (8%) one year previously, and just 593 (6%) three years previously (10).
  

• New marketing opportunities Advisers should be able to identify affinity and niche marketing opportunities. People who are interested in social, environmental and/or ethical issues are often unaware of the existence of green and ethical investments.
  

• Improved product persistency rates Green and ethical investors are more likely to be faithful to their investment and hold on to it through market downturns, as they may have invested for more than simply performance reasons. So ethical investors are widely believed to be more persistent than other comparable investors.

It is looking increasingly likely that future legal, regulatory or professional standards changes may make an awareness of green and ethical investment an increasingly important factor for adherence to professional standards or even compliance.  For example:

• The Financial Services Skills Council has published an exam syllabus that includes ethical investment for the first time. Both the Chartered Insurance Institute (CII) CF2 and Institute for Financial Services (IFS) CeFA exams now have modules on ethical investment. All new advisers will therefore have a basic knowledge of ethical investment and the provision of advice in this area. (11)
  
  
• The British Standards Institution (BSI) launched a new international standard for competence in personal financial planning, ISO 22222, in 2006. Financial advisers will soon be able to use the prestigious BSI kitemark for achieving this standard. However, it requires that the client data requested by a financial planner should normally include “attitudes to social, ethical, environmental and religious considerations". In their draft guidance on compliance, the BSI said that financial planners should have adequate processes in place to give appropriate advice where a client expresses interest in these areas. It highlights UKSIF's 'Investing Responsibly' toolkit, which forms the basis for this course, as an aid to help meet the standard's requirements. (12)
  
  
• The 2006 government Pensions White Paper Personal accounts: a new way to save said the government expects that the new system of personal accounts will include SEE investment options. (13)
  
  

By identifying whether or not the issues behind green and ethical investment approaches are important to a client and developing skills in advising on this area, an adviser can be prepared for these types of future changes.

There are a number of specific technical issues surrounding the provision of green and ethical investment advice. A number of your clients may not have enough knowledge and experience about this area or general investment issues to be able to make appropriate decisions without advice.

Along with knowledge of asset allocation, risk and reward, tax and choice of appropriate tax wrappers for clients, the ability to provide green and ethical investment advice is therefore an important part of every financial adviser's skill set and requires specific competencies.