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Choosing an ethical Independent Financial Advisor

Where complex decisions around pensions or involving large sums of money need to be made, seeking professional advice is almost universally recommended.

Finding someone who will respect your ethical principles and take them seriously, is easier than it used to be.

Independent Financial Advisors (IFAs) tend to operate as small businesses, partnerships or sole traders and there are more than 5,000 in the UK. IFAs used to focus on a specific region, but nowadays many will advise nationally.

Since well before lockdown, money has been pouring into ethical funds, many of which have performed better than traditional funds during the COVID crisis. This means that even previously cynical advisers are showing more respect for this approach and you’d be hard-pressed to find one that didn’t mention ‘sustainability’ or a similar buzzword at least once in their promotional materials. In a way, this can make finding a decent ethical adviser harder than it was.

Although we look at ethical financial advisers and ethical investment platforms separately, in reality, their services commonly overlap, with the websites of financial advisers often enabling logins to trading platforms and investment platform websites commonly offering lots of structured advice.


Finding an ethical financial advisor

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  on their website.

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 four, as you can tell from the names, focus exclusively on ethical investment advice.

A fifth specialises in offering both socially responsible investment advice and Sharia-compliant arrangements:


Costs and minimum investments

Since January 2013, when new regulations came in, financial advisers have had to charge a fee for investment, pension, and endowment advice rather than accepting commission. It is normal to agree a fee in advance and rates are commonly around £100-£250 per hour.

Approaching a firm for bespoke advice is rarely recommended for people with less than £50,000 or even £100,000 to invest (which is the majority of UK citizens).

However, they can be really useful for complex long-term arrangements like pensions and mortgages and we suggest consulting them occasionally in some of our money guides. With an online platform or app though, it is possible to start investing ethically from as little as £2 per week.


Personal chemistry

We always like to add that, even with ethical advisers, you do need to find someone with whom you are comfortable personally, and it may be worth trying more than one. As one of our subscribers wrote to us:

“I had some money I wanted to invest and so I started looking for a financial adviser. 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.”



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.

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