Choosing an ethical Independent Financial Advisor

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.