The lack of multi-sector solutions is a gap in the responsible investment market and it is not always easy to source appropriate investments, according to a whitepaper.
HUB24’s latest research on platforms and responsible investments found 90% of Australians believed it was important that their financial adviser provided responsible or ethical options, 86% believed it was important their adviser asked about their interests and values in relation to their investments, and 75% would consider shifting their banking and superannuation to an alternative provider that invested responsible and ethically.
Despite the high interest, Ford and Scott Financial Planning director, Tim Scott said in the whitepaper that multi sector solutions were currently a gap in the market.
“A stumbling block has been cost and there is still a lack of depth in the market. If you are trying to build a portfolio, you are limited to sector-specific investments,” he said.
Ethical Investment Advisers joint director and financial adviser, Louise Edkins, noted in the paper that her clients wanted to be more environmental, social and governance (ESG) specific in their exposure.
“For example, a client who wishes to avoid investment in fossil fuel companies will not wish to invest in an ESG fund/exchange traded fund offering which has an ESG screening which could be investing in fossil fuel companies and engaging with them on their environmental, social and governance risks. They want more than this as they don’t want fossil fuels at all,” she said.
The paper said a greater level of activity in the managed portfolio space would help overcome some of the challenges, including tailoring portfolios specifically to the values of their clients.
“Managed portfolios will also assist advisers to offer responsible investing across their client bases in a time and tax efficient manner, as advisers continue to remain busy evolving and shaping their businesses for the future,” the paper said.
“Further, tools such as stock substitution and setting investment preferences provides financial advisers and their clients with greater tailoring and management capability.”
However, Pendal Group’s head of Regan and responsible investment distribution, Jeremy Dean said it was the investment managers who needed to get better at helping advisers have informed and insightful discussions with clients.
“We are dealing with often complex and multi-layered issues and in many cases, there is no clear ‘right answer’. We must be true to label and explain issues at the margin. Importantly, we cannot stuff this up,” Dean said.
“There is a structural change in the needs and expectations of investors, and we must continue to deliver quality investment returns through an ESG lens.”
