Of Ethos And Ethics

As an IFA specialising in socially responsible and ethical investment my concern is always to give my clients the attention they deserve.

In September and October 2008, as the financial system teetered on the verge of collapse, the ability of any financial adviser to do that for their clients was brought into question.  

But what the awful uncertainty of that time did was crystalise my very real desire to be able to watch my clients' portfolios more closely, to be able to act defensively if needed, and at the same time take advantage of any investment opportunities should they arise.

This is not new idea, of course, it is discretionary portfolio management services - but it got me thinking about how to bring that ethos into the socially responsible, green, sustainable and ethical investment market place, as well as adding a few enhancing twists - something arguably not done before.

What I wanted was to create the essential elements of a Socially Responsible Discretionary Management Service, which would include:

• model portfolios with different risk gradings to try to accommodate as many people as possible with the advantage of giving active investment management to everyone;
• access to the whole investment marketplace which had to include not only unit trusts, and open-ended investment companies but also investment trusts and exchange traded funds;
• a built-in rebalancing program that would provide investors with the opportunity to enhance growth prospects but crucially offer less risk;
• create an automatic transfer facility so that clients with large amounts to invest will maximise their annual ISA allowance each year;
• provide income seekers with the ability to budget by selecting a fixed income which can be paid monthly by taking withdrawals from the cash account of the DPMS which is replenished by dividends.

A tall order you might say particularly with the target audience limited to ethical investors - which was unlikely to be commercially attractive to many existing discretionary managers - even if they had the relevant expertise I required.

That it would appeal to my clients I did not doubt. As a firm we had been tailoring ethical funds to a client's lifestyle, beliefs and investment risk attitude since the mid 1990s. On our website we have a fairly detailed questionnaire that we ask new prospective clients to complete, and with the answers they give we research the funds available and create a portfolio to match those answers.

That there was demand for ethical investing outside of my client list I also had no doubt. I talked to a PR officer recently and he said that he liked the idea of investing ethically but he thought most of the public would only be prepared to put 10% of their money in that sector. At the moment about 4% of all money in the UK is invested ethically. That leaves 96% potentially sitting on the fence. If 10% of that 96% were invested ethically that would be an exciting prospect.

There was one other thing on which I was in no doubt - that clients expect good performance to be a crucial ingredient of their investments, ethical or not.  

With all this in mind I started the process to find a discretionary manager that could deliver what I wanted alongside an efficient administration set up. It looked a tough assignment and proved to be one until a chance talk put me on to Paul Warner who runs a small discretionary management company called Minerva Fund Managers Ltd.

From the start I got on well with Paul, and could immediately see that he had vast experience in this area, but as he admitted, his knowledge of the ethical investment universe was not good. That actually didn't worry me because that was my strength. Over the next few months we built the Socially Responsible Discretionary Portfolio Management Service, investing in what we regard are the best socially responsible and ethical funds available. 

I am convinced we have come up with an active investment management service for ethical investors that offers the potential for good long-term performance combined with the knowledge that they are "doing-their-bit". All this is backed-up by a quality administration service provided by an excellent fund supermarket/wrap called Avalon. I am a happy man.