Advisers failing ethical investors

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So many financial advisers are providing inadequate advice on ethical investments that Australian investors are contacting a specialist ethical investment fund manager directly.

Australian Ethical Investment was set up in 1986 for the purpose of environmental and socially responsible investing.

Seventy per cent of Australian Ethical’s clients contact them directly, its business development general manager Adam Kirk tells Wealth Professional.  

“A lot of those people already have a financial planner, but are retaining money aside from that financial planning service to invest in ethical products, because they don’t believe their adviser has enough experience in it.”

Australian Ethical seeks out positive products to do with people, animals, society or the environment and avoid products that cause unnecessary harm to the same.

“We put a negative screen to avoid things like tobacco and mining and we also put a positive screen to invest in companies that actively do good, such as funding medical breakthroughs,” says Kirk.

Australians are increasingly concerned with aligning their money and values, even if it is just a portion of the money they have to invest, says Kirk. Research done by his company indicates 2.2 million Aussies want to invest more responsibly.

So why are advisers not recommending ethical or socially responsible investments more?

Many believe socially responsible investments are likely to give lower returns, as by excluding some stocks you exclude some opportunities.

“There are a lot of myths around ethical investments, and one of them is that the returns aren’t the same as more mainstream investments,” Kirk says.

“But there’s been a lot of research done on that, and in fact, they’re equal if not better.

“I think there’s a lack of understanding as well; it’s seen as reducing the market that people can invest in. But it still allows us enough market to get diversity.”

Research displayed on Australian Ethical’s website shows the value of $10,000 invested 10 years ago. The S&P/ASX300 market index is $22,190 but the ethical index – stocks within the S&P/ASX300 that pass Australian Ethical’s positive and negative screens – is $26,540.

Australian Ethical would “love” to get advisers on board, and even have an education programme and tools on its website to teach advisers how to direct their clients toward more ethical choices.

“You can’t really go to a client and ask them whether they want to take ethical investing into consideration when choosing investments, because that’s too broad. You need to narrow it down from there because everyone’s ethics are different,” Kirk says.

“Ask them exactly what they do and don’t want to invest in and really get down to the nitty-gritty of it. Ask them if they would be happy investing in, say, a tobacco company.

“I mean, you look at the Cancer Council which – up until early this year – was invested in tobacco companies, which is just ridiculous. And it’s because there’s just a lack of awareness out there.”


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