Last updated: March 2014
Choosing an ethical Independent Financial Advisor
In our guide to ethical pensions, we discuss how it is possible, if you are a confident investor with knowledge of markets, to make all your investment decisions alone. The arrival of huge amounts of information on the web and new web tools have made this approach even easier. However, for most of us, where complex decisions around pensions or involving large sums of money need to be made, seeking professional advice is almost universally recommended.
Independent Financial Advisors (IFAs) tend to operate as small businesses, partnerships or sole traders and there are more than 15,000 in the UK. If you are an Ethical Consumer reader, you are almost certainly looking for someone who will respect your ethical principles and take them seriously, which may not always be the case. Fortunately, narrowing down the list of IFAs to find someone like that is easier than it used to be.
Ethical Investment Association
The Ethical Investment Association is a group of IFAs who are “keen to offer green and ethical investment advice to their clients”. It was founded in 1998 and is now a sub-group of the UKSIF – the UK Sustainable Investment and Finance Association. They have a list and contact details for their 49 current members (including the five 'pioneers'below) on their website.
IFAs used to focus on a specific region, but nowadays many will advise nationally.
Ethical investment pioneers
If you want to narrow this list of 49 down even further, pioneers in the field with solid reputations, and who we know at Ethical Consumer, include:
All five, as you can tell from the names, focus exclusively on ethical investment advice.
Even with ethical advisors, you do need to find someone with whom you are comfortable personally, and it may be worth trying more than one. As the following IFA customer explains:
“I had some money I wanted to invest and so I started looking for a financial advisor. I found quite a few who claimed to know about green and ethical investments but I wasn’t impressed by any of them. They explained that I could cut out certain companies, but they didn’t really seem to understand what I wanted to do. It took a while to find someone on my wavelength, but when I did, it made such a difference.”
How much does it cost?
Since January 2013 when new regulations came in, IFAs have had to charge you a fee for investment, pension and endowment advice rather than accepting commission.
You can either pay upfront for their time, probably around £100-£250 per hour, or you can ‘agree a commission-like fee which is taken from money you invest in a product you buy through them’.
Are ethical savings just for the wealthy?
Brigid Benson, founder and former MD of ethical specialist IFA Gaeia, reflects on how ethical investing is becoming more difficult for the less well-off.
The growth of ethically-screened funds comes at the same time as the gap between the rich and the rest of us gets wider. In addition, the mass savings market is shrinking and many final salary pension schemes are now closed. The majority of jobs recently created are either part time, zero hours, or low paid with no quality employee retirement provision. This inequality is charted in a number of publications, including ‘The Cost of Inequality’ by Stewart Lansley.
The UK used to have a dynamic, innovative consumer financial services sector, with a myriad of savings and pensions options for the modest as well as the affluent. This climate gave rise to ethically-screened funds, and to greater awareness of corporate social responsibility across all sectors.
There was undoubtedly some mis-selling which the Retail Distribution Review (RDR) was supposed to address. However, millions of pounds and six years later, the result has not really been a reform that benefits the mass market. This is because banks and building societies mostly do not offer advice or savings/pensions products suitable for the majority of the population now. This, along with years of constantly changing rules, labels, and increasing regulation, has now made providing advice so costly that only an affluent minority can afford it.
Many financial advisers have offloaded their modest clients as they can no longer afford to advise them. Most insurance companies and financial institutions no longer market or offer regular savings or pensions plans with modest minimums as it is not profitable. Cross subsidy (permitted in most other retail sectors) of smaller, often less wealthy clients is no longer allowed, although this is precisely how most of our advisory firms, banks and insurance companies grew big in the first place.
Investment websites for consumers and crowdfunding, while positive, in no way fills the savings gap nor ensures people save enough for their retirement. It is no surprise that the rest of Europe has not followed suit, nor taken up the new RDR model, because it thinks that a fee-based bespoke model is not suitable for the mass investment and savings market. This requires a sales/admin force that is salaried, well-trained and regulated with only modest bonuses. UK politicians of all parties have abandoned the future financial needs of the majority, and allowed a new regulatory regime which supervises highly qualified, fee-based advisers for the elite.
This was written in a personal capacity and does not represent the views of Gaeia or the Castlefield Group. Gaeia stands for Global & Ethical Investment Advice.