There is often a vast gulf between what people think financial advice is all about and what it actually is. The popular view that advice is solely focused on picking good investments is akin to the view of a GP as someone whose role is purely to prescribe pills.
So TEBI is running a series on the many and often surprising reasons you might seek the counsel of a professional planner. So we’ve come up with a list of ten, and although it certainly isn’t exhaustive, it’s a helpful starting point. Here, then, is another reason.
Reason #4: You want to do well and do good
Amid climate change, environmental degradation and growing social ills, millions of people globally are seeking to put their money where their mouths are and invest responsibly. The idea of doing well and doing good has certainly caught on, but there are traps for the unwary.
The first is understanding exactly what is being sold. Responsible investing is an area clouded with often indecipherable jargon — ESG and SRI and impact investing and ethical investing and values-based investing and green bonds and greenwashing etc; etc; What does it all mean?
A second challenge is working out what you might be compromising by investing sustainably. A portfolio containing half a dozen renewable energy stocks might make you feel good, but is it going to get you to your investment destination without assuming unnecessary risk?
A third challenge is working out which option is right for you. The demand for sustainable investment is being met with a surge in supply of products. According to Morningstar, sustainable fund assets rose 19% in the first quarter of 2021 to just under $US2 trillion. Those assets were in more than 4,500 funds globally, with more than 75% of those in Europe alone.
Amid the flooding of the market with products labelled as responsible, securities regulators have become concerned about the risk of “greenwashing”. This is where managed funds or companies make unsubstantiated or false claims about their environmental or social credentials. We have seen examples of this in the UK only in the past year. An effort is underway to ensure proper global standards.
So there are dangers here. Investing responsibly is a noble cause. But there is also a real risk that you end up in a product that is costly, opaque, not true to label, unlikely to match your values and, most of all, unlikely to get you to your investment destination anyway. In other words, you could end up doing neither well nor doing good.
The planner’s role
These are all strong reasons to consult a financial planner who can help you navigate the maze of responsible investing – cutting through the jargon, understanding what is being screened, assessing the costs and looking at whether the investment methodology stacks up.
Good planners will start by seeking to understand what your values are and how you want to express them through your investments. Their next job is to connect those material and non-material aspirations to a portfolio that best matches your needs. And finally, they need to set expectations properly and help you understand the trade-offs involved.
For instance, different strategies can use a broad style of methodologies to integrating environmental, social and governance (ESG) issues into their investment approach. Some exclude entire industries. Others use a more graduated approach. Some weight more to one issue, like deforestation, than to others, like carbon emissions.
On the social side, some strategies may focus exclusively on the traditional “sin” industries like tobacco, alcohol and gambling, while neglecting areas like personal weapons, child labour, landmines and factory farming.
Good advisers will start with you and your needs and values and work back from there, rather than selling you a product off the shelf. Most of all, they will ensure you can see the actual impact of what you are investing in, not only in terms of investment returns but in terms of the environmental and social issues that matter most to you.
All this has to be achieved according to sound investment principles and without making excessive sacrifices in terms of cost, diversification and risk. These sorts of judgements are best made by a professional who can cut through the marketing spiel to the underlying substance.
Don’t be disheartened. It certainly is possible to do well and to do good without spending a fortune or taking huge risks. But it is lot easier with an adviser to guide you along the way.
Missed the first three parts in this series? You can catch up here:
New start? It pays to speak to an adviser
Complexity: another reason why you need advice
Advising on life’s big changes
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Robin is a journalist and campaigner for positive change in global investing. He runs Regis Media, a niche provider of content marketing for financial advice firms with an evidence-based investment philosophy. He also works as a consultant to other disruptive firms in the investing sector.
