Planners cautious about ethical funds

Planners may be climbing aboard the ethical investment bandwagon in greater numbers, but they remain conservative about giving ethical investments a high profile in their clients’ portfolios.

In a survey undertaken by Rothschild to gauge the change in attitude of financial planners and investors in the last 12 months, it was found that 78 per cent of the 4000 planners surveyed were currently using or considering using ethical funds in their clients’ portfolios. This was an increase of 12 per cent on the year before.

But of those 78 per cent, only 20 per cent were actually using the funds while the remainder were still considering taking the plunge.

But Rothschild product development senior manager Mark Watmore believes that there are positive signs of planners warming to ethical investments emerging from the research.

“Significantly, only 2 per cent said they would not recommend any part of a client’s portfolio to ethical funds,” he says.

When it comes to allocating substantial slices of clients’ portfolios to ethical funds, however, planners continue to play on the side of caution. More than two thirds of the planners surveyed said they would allocate between 1 and 10 per cent of their client’s portfolio to ethical funds, while 21 per cent said they would allocate 11 to 20 per cent. A very small minority, or 8 per cent of those surveyed, said they would allocate more than 40 per cent of their client’s portfolios.

“Planners still remain conservative on what proportion of their client’s portfolios they will invest in ethical funds and see it as simply another means to diversify their client’s portfolios,” Watmore says.

Conversely, investors were found to want more of their portfolios skewed towards ethical funds, with more than half of them prepared to invest more than 50 per cent of their portfolio in ethical funds.

Watmore makes the distinction between the planner, whose responsibility is to balance risk and return ratios and sees ethical funds as another diversification, and the investor, who wants to make an emotional statement with their investment.

But one reason why planners continue to remain cautious is that ethical investment products have not reached the levels of proliferation across the entire investment board.

“Until there is a much broader range of ethical investment products covering all asset classes, planners won’t be investing large parts of their clients’ portfolios in ethical funds,” Watmore says.

“If it does get to that point, there would be no reason why some planners could not start offering their clients a suite of ethical products in a portfolio composed entirely of ethical products.”

In the meantime, financial planners will continue to increase their own and their clients’ exposure to ethical investments. Watmore attributes the growth in popularity to the demands of ethically aware clients, and to the migration of ethical products out of the boutique managers and into the menus of the industry larger players, such as Rothschild and AMP.

Watmore says the nature of planners’ responsibilities in balancing risk and return, while ensuring the performance of their clients’ portfolios, will always mean planners will be conservative. But their role as educators is a vital one, he says.

“Many Australian investors have not heard of ethical investing and those that have seem willing to invest a much larger portion of their portfolio in ethical funds than planners would.”

Across Australia, Western Australia appears to have the most ethical-conscious investors, according to the survey, with more than half of the respondents saying they would consider ethical investments. This compared with only 14 per cent in Queensland, and 30 per cent of investors in each of New South Wales, Victoria and South Australia.