Expert: Liam Setna Investment Director, Quilter Facilitator: Roderic Rennison, Catalyst Partners Ltd
Headlines:
- Client assessment is a key area for advisers to focus on in relation to ESG preferences
- According to the FCA, financial advisers should “take sustainability matters into account in their investment advice and understand investors’ preferences on sustainability to ensure their advice is suitable”
- A balance needs to be struck between how clients may feel about investing in certain areas, and a more restricted investment approach
- When it comes to asking the right questions, ask a manageable number, avoid binary yes or no responses, ensure questions are understood, and avoid biased, leading or mis-leading questions
- Managing “greenwashing” risks is an important part of the advice process
Context:
There is an expectation that sustainability preferences are already factored into your advice. Specific rules will be developed and introduced, such as FCA DP21/4 1.11 Sustainability Disclosure Requirements and investment labels, which states: “We are also exploring how best to introduce specific sustainability-related requirements for these firms and individuals [financial advice firms]… a key aim will be to confirm that they should take sustainability matters into account in their investment advice. We will develop proposals on this in due course…”
Objective: Look beyond the name: what is the investment actually designed to do?
Strategy: What is the strategy to achieve the objective?
Characteristics: Do the underlying investments reflect the strategy?
Key takeaways:
- There are a number of useful items for monitoring and reporting. These include: exclusions and product involvement, carbon footprint, and ESG alignment
- Regular ESG reports provide evidence of investment manager’s activities. It is important to understand the data they produce
- Questions to ask may include: What is your definition of involvement? What is your list of exclusions? Has this created an unbalanced portfolio with a lack of diversification?
- There needs to be comprehensive end to end investment processes
- The advice journey needs to be supported by tools, processes, guidance, and investments available to assist advice firms. These include: client questionnaires, client descriptions, suitable portfolios, portfolio monitoring, and client reporting.
