Consumer Duty and sustainable investment


As advisers are manufacturers of their advice process, this has given us an opportunity to review the advice process and also the review process. As ever, the main thing is to keep evidence that the review of processes has taken place. The expectation is that with Consumer Duty needing to be embedded by 31st July, there will need to be a high-profile application of the rule and penalty imposed by the FCA to confirm the seriousness or otherwise of the FCA towards Consumer Duty.

On of the mandatory aspects of the advice process is the consideration of clients’ attitude to Sustainable Investment. This is already incorporated into many factfind templates and also attitude to risk questionnaires. The clients’ beliefs, ethical values and goals are quite a nuanced subject and cannot simply be addressed by “do you want to include Sustainable Investments in your portfolio?”

Most clients want to give an adviser £10, take a level of income or build for growth and get £11 back

I have recently spoken with advisers and fund managers about sustainable investments and the replies that I received were along the lines of “Sustainable investment was really big around and just after COP26, but nobody wants it now.”  They seemed quite oblivious to my withering and contemptuous stare.

They were referring to the fact that sustainable investments “under-performed” against portfolios that contained oil and gas holdings over the last year. This short-term thinking is at the root of our problem. The short-term view of governments. The short-term of advisers who overvalue performance of investment funds. Seeming to put It as a higher priority than maximising the opportunity of clients pursuing their objectives.

Most clients want to give an adviser £10, take a level of income or build for growth and get £11 back. Preferably without putting their investment at unnecessary risk. It is becoming increasingly important for the underlying investments to be in companies that are doing good or at least minimising harm.

Interestingly (to me), it is sustainable investment that is likely to achieve this simple investment goal in the long-term.  As we strive to move away from fossil fuels, there is a lot of money being invested in research projects to bring forward means of harnessing renewable energy.

Obviously, last year, oil and gas increased in price due to scarcity and supply problems that have been put at risk by the invasion of Ukraine by Russia. Thus, all the funds that did not hold oil and gas stocks missed out on that gain.

On 22nd June, the Church Commissioners and Church of England Pensions Board each announced they will independently disinvest from fossil fuels this year, as the Church of England’s National Investing Bodies (NIBs) reported back to the General Synod on progress against a 2018 Synod motion, which set out a five-year strategy to invest in climate solutions, engage with high carbon emitting companies, and disinvest from fossil fuel companies not aligned with the Paris Agreement.

This is an interesting development, which raises the question about whether it is better to disinvest or to practice stewardship to change behaviours.

But this kind of action brings the need for sustainable investment into the public domain and it may well be the trigger for other fund managers to start to follow suit. If this were to become prevalent practice, those fund managers still investing in a high-emitting companies may well find that they are holding unsellable assets in their portfolio.

This is the sort of information that advisers should be using to introduce sustainable investment to their clients going forward. In fact, the newspapers and other news distribution channels will be the gift that keeps giving to bring the subject live for advisers and clients.  Advisers have ready made case studies and evidence to back up their investment recommendations.

Surely, this must make compliance with the Consumer Duty regarding the requirement to cover sustainable investment fairly straight-forward.   There is so much information available and if advisers want to start with a basic introduction to  all things sustainable, they could do a lot worse than reading my ESG Report from November 2021 to gain a basic level of knowledge of the subject.  I am just embarking on an update report.

The main thrusts of the Consumer Duty to try to maximise the opportunity for consumers to pursue their objectives and to minimise foreseeable harm. Part of this is the consideration of client vulnerability. This is to try to address impediments that may stop consumers from reaching a  level of understanding to enable them to make an informed decision about the way to proceed with a course of action to pursue whichever objective they have prioritised.

This is simply the application of empathy to consider particular incidents and circumstances that may be causing clients problems at any particular time. These issues are various and would need to be dealt with separately to do them justice.

We live in interesting times which is a misquote of my favourite ancient Chinese curse.



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Tony Catt from The Catt's Eye View Tony Catt is a freelance compliance consultant working with several firms of different sizes. "I have previously been an adviser, which gives me a good understanding of the advice process and dealing with customers and I enjoy a close relationship with my adviser clients"

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