Are you talking to your clients about investing ethically, sustainably and with corporate governance in mind? 

    Several bodies suggest that it is mandatory or will become mandatory for advisers to introduce ESG considerations into their suitability assessments. 

    The FCA has indicated that it will be changing the Conduct of Business Rules to incorporate ESG considerations.  And the European Securities and Markets Authority (ESMA) guidelines on suitability requirements published in May 2019, already states that it is “good practice for firms to consider non-financial elements when gathering information on the client’s investment objectives and collect information on the client’s preferences on environmental, social and governance factors”. 

    So how do we assess a client's preferences? 

    This is the million-dollar question. Personally, I don't feel you can simply ask a client, do you want to invest in companies and/or funds that consider the environment, sustainability and corporate governance? This is a leading question and clients are unlikely to say no. 

    Like with most things when it comes to suitability, it boils down to knowing your client. 

    One person suggested asking clients, “to what degree would you consider investing ethically, sustainably and/or being mindful of corporate governance? Where would you consider yourself on a scale of x to y?” 

    I'm not sure if this is the answer. One adviser I spoke to said this usually results in the client asking what this means. Having explained the difference, would it still result in the answer "yes" through fear of being considered to not care for the world in which we live? 

    As a population, I think we are becoming more and more focused on the impact that we have on our planet. But do we think about our impact on the planet when we invest our money?  

    Many surveys suggest that more clients want to invest ethically and I wonder how much of this is down to regulation and marketing?

    We have seen the launch of several hundred different funds, branded as ESG appropriate, over the past few years. It seems to be the buzz word in every industry publication. 

    Assuming weve figured out how to establish whether a client wants to invest in a certain way, without having framed the question incorrectly and inadvertently pushed them down one path or another, how do we then invest the client's money? 

    ESG investing means different things to different people, and unless you choose individual stocks, I don't think you are likely to satisfy each clients need simply buying a fund.

    For this reason, we place a risk warning in our reports stating that the fund(s) we have chosen has been classified and/or labelled as being suitable for a client who wants to consider ESG.  What might be considered as being ESG suitable for some, might not be ESG suitable for others.  

    Indeed we did some research last year and discovered that Heathrow Airport stock was in the top five holdings for two quite sizeable ESG labelled funds. 

    So, do we simply offer clients a one size fits all approach to this type of investing? Or do we need to employ the services of a DFM to meet each individual clients preferences? 

    I would love to see the regulator or the regulatory bodies issue guidance on this subject. At the moment, I feel many are either not asking the question or asking the question in a way which results in potentially the wrong answer and/or solution.  

    The only guidance I can offer is knowing your client is key to suitability.  But how you go about assessing a clients preferences and then investing the money according to those preferences is anyone’s guess. The only solution I can think of is to offer different shades of ESG to meet varying degrees of how ESG the client wants to be. 



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