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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  • Adam @ Australian Ethical on 20/11/2013 2:42:22 PM

    Thank you to everyone that has commented on this article. First, our Larger Companies Trust is invested in domestic and international shares, so it’s not appropriate to compare it’s performance to the ASX300 which is solely an Australian shares index. The video on our website referring to the “ethical index” analysis only took into account Australian Equities. We also acknowledge that the website (which is relatively new) is very much retail investor and superannuation focussed as this is our main market. We are taking steps to make relevant sections of the website more adviser-friendly but would request that you all sign up to receive our regular fund reports at Thanks again

  • Lisa on 19/11/2013 2:47:20 PM

    I think it is fair to say positive screens introduces more mid and small cap end of the investment landscape which could mean higher or lower returns in any given period. We advise our clients about the risk and volatility, and note the high fees although most are happy to pay more to support the environment etc.

  • Matthew Ross on 19/11/2013 2:17:34 PM

    "but I reckon you would be better off investing in the index and donating the difference in returns to charities to make an active difference."

    Change index to "passive" and I'm a +1.

  • Pat on 19/11/2013 1:50:38 PM

    What is equally interesting (read as misleading) is the reference in the article above to the relative performance, yet looking at the report for the Larger Company Trust over 10 years to September 2013, the fund has underperformed its benchmark (not stated on the report) by 1.7% p.a. and underperformend the ASX200 by 3.1% p.a. Who knows if these returns are net of fees, but I reckon you would be better off investing in the index and donating the difference in returns to charities to make an active difference.

    But GAB said, using 2+ year old data is as bad as the reporting by Industry Funds.

  • GAB on 19/11/2013 11:29:49 AM

    In my opinion I find the website a bit misleading, comparing the ASX 300 to the Ethical Index (not the actual ethical funds) and comparing average managed funds to average responsible funds (not the actual ethical managed funds)....and using figures to 30 June 2011...c'mon, that's a bit old hat. I understand the intention but it all looks a bit too smoothed over for my liking. If I was an adviser looking at this sector I would expect something better.

  • Matthew Ross on 18/11/2013 11:59:12 PM

    Strange. Just downloaded the Lonsec report for the Larger Companies Trust.

    The 10 year return for the fund is 7.07%pa. The Lonsec Benchmark (ASX300) 9.73%pa.
    (to 31 October 2013).

    ICR of 2.33%pa on the fund goes some way to explaining the 2.66% underperformance of the index.

    Have I got my facts wrong Adam? Have you....?

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