Financial advisers go ethical

Increasing numbers of financial advisers now offer green and ethical investments, according to a new survey.

The study, by the Association of Independent Financial Advisers (AIFA), was conducted as part of the run up to National Ethical Investment Week, which starts on 7 November.

Given that its purpose is to support the week, and ethical investments in general, its findings should be treated with at least a degree of caution. Nevertheless they do provide several useful insights.

First; financial advisers are becoming more aware of ethical and green investments. According to the survey 80% now offer some services in this area. They are also becoming more educated about the sector. Almost four in ten now say they have sufficient information about ethical investments – up from 34% in 2009 and just 15% in 2008.

Second, financial advisers are becoming a more important source of information for ethically minded investors. Another recent poll – this time from the Foresters Friendly Society – found a quarter of all respondents believed Independent Financial Advisers provided the most trusted source of information about ethical investments – comfortably ahead of banks and online communities.

However, doubt remains over financial performance. Almost half (48%) said concern over financial performance is the major barrier preventing further investment. 40% of respondents also said they believed ethical investments did not cover all client risk profiles.

It's an assessment that Penny Shepherd, chief executive of UK Social Investment Finance (UKSIF), refutes. "There are green and ethical funds with excellent recent and long term performance, which demonstrates the potential for investment growth in the sector," she explains.   

"Some funds have experienced challenges during the downturn…. However, the potential future growth from sustainability themed investments, such as green energy, is huge."

Supporting evidence is mixed. According to a study in 2009 90% of advisers said ethical investments had performed as well as the mainstream market. Conversely a recent study of French SRI funds by EDHEC-Risk Institute suggested they significantly underperformed their traditional counterparts.

As National Ethical Investment Week draws near, therefore, the onus is on the sector to dispel myths and provide greater clarity to would-be investors on just what they can expect. Only then can green and ethical investments finally make the break from the margins.

It found that approximately 80% of financial advisers now offers ethical and green investments.

The study also suggested that access to information had significantly improved. In this year's sector almost four in 10 respondents said information was adequate – up from 34% in 2009 and just 15% in 2008.

These figures offer some qualified optimism for the ethical and green investment sector, as Penny Shepherd chief executive of UKSIF acknowledged.  

"The sector is no longer restricted to specialist ethical advisers," he says. "Advisers are responding to increased interest from clients about green and ethical investment, but we still need to challenge some of the myths and misperceptions about the sector."

Nevertheless the survey also suggest the sector still has some work to do if it is to win over the doubters. Almost half of respondents said investment was held back due to a perception that ethical investments perform less well than mainstream counterparts.

However, Penny Shepherd refutes this assertion. "There are green and ethical funds with excellent recent and long term performance, which demonstrates the potential for investment growth in the sector," he explains.   

"Of course, some funds have experienced challenges during the downturn, particularly if they have a small cap bias. However, the potential future growth from sustainability themed investments, such as green energy, is huge."

For support he can point to a study from October 2009 which found 90% of financial advisers said ethical products performed as well as mainstream counterparts. However, other sources of information would seem to be less clear cut.

A recent study of French sustainable investments found they significantly under performed the conventional market. With so many conflicting messages regarding green and ethical investment, the challenge the sector needs to make use of the upcoming Ethical Investment Week to spread awareness.