Yes, it’s a challenge but the good news is that ESG Accord has got this sorted for you! In this month’s article, ESG Accord’s Lee Coates OBE not only uncovers some of the due diligence challenges advisers face but also reveals a special offer to help you overcome the pitfalls of ESG and Sustainable MPS due diligence.
In a previous article for IFA Magazine, I looked at the some of the benefits for advice firms in using a Managed Portfolio Service (MPS). There are lots of different ways for firms to provide advice to clients looking for ESG/ Sustainable Investment options, but the wall of new funds and retrofitting of existing funds makes good due diligence really difficult. The number of available funds will continue to grow, and advisers will need to keep on top of this.
Requirements set to grow
Then there is the Fund Label regime, which is likely to come in during 2023, hot on the heels of the Consumer Duty rules. The FCA’s consultation paper on Fund Labels is due by the end of Q2, so recommending individual funds will require detailed discussions with clients on how the Fund labels work and what they mean.
An ESG/Sustainable MPS can provide most clients with a suitable solution, allowing advisers to match client needs to the wide range of MPS solutions. These can range from a basic ESG risk metrics MPS through to ethically screened, responsibly-themed or Impact focused MPS.
Although the due diligence of individual funds can be passed to the DFM, advisers will still need to conduct their own due diligence on the DFM’s MPS offerings. Whilst the number of options to review is markedly less compared to reviewing individual funds, it is still a labour-intensive task.
Questions, questions…
The starting point for advice firms will be formulating a set of questions for MPS providers which cover the different aspects of ‘sustainable finance’, such as ESG, Responsible, Impact, SDGs and Ethical. Within each category there will be further questions needed to cover appropriate issues for each category. The more comprehensive the information gathered, the easier it is for advisers to match client values to the most appropriate MPS.
With the questions sorted, advisers can then do their research to find those DFMs offering an ESG/Sustainable MPS, send the questions to the identified DFMs, chase (and probably chase again)_ to get the answers before adding to the firm’s internal due diligence records. This information can then be accessed, hopefully in a userfriendly format, to match the individual values of clients looking for ESG and Sustainable investment options.
Or… let us sort it for you!
On 31 March 2022 ESG Accord plans to release its long awaited ESG/Sustainable MPS Report! The report will show the answers to over 70 ESG & Sustainable questions from over 45 MPS providers. ESG Accord’s new report will help advisers to match the most appropriate MPS with a client’s ESG & Sustainability preferences and objectives (remember ESG Accord also provides detailed ESG & Sustainable Client Triage & Values Questionnaires which correspond with the due diligence report).
Due to the sheer volume of data provided in answer to the 70+ deep dive questions, it isn’t possible to produce a Word or PDF version of the Report. So, we have built an online viewer which includes useful filters and comparison options between providers. It’s simple to use and compare funds, with the ability to print results for your file. Access to the report will effectively save your firm hours of research time and will assist with broader compliance and even identification of training needs.
Advisers may wish to use the online Report with their clients, thereby increasing their engagement in the advice process. Many of the questions we have asked fall into the ‘show and tell’ category. Instead of simple tick box questions, we have allowed MPS providers to describe how they do what they do in as much detail as they need. We’ve encouraged MPS providers to explain their service and processes as if they were speaking directly to clients, sitting with their financial adviser.
By subscribing to the Report, you’ll be able to view and compare;
- How climate risks are identified and mitigated
- Compare E, S or G characteristics/themes
- Compare MPS investment objectives & policy
- Compare non-financial objectives and impacts
- Find information on contradictory holdings
- MiFID II filter includes target markets, charges, Investment strategy and platform availability
The normal price for advisers to access the ESG & Sustainable MPS Report is £100. Thanks to the support of the Report’s sponsors, we are pleased to confirm that this has now been waived until further notice. Instead, we would ask advisers to consider making a donation in aid of Ukraine.
To register for the free Report, please click here
About ESG Accord
Lee Coates OBE is the co-founder and Director of ESG Accord, a member of the Association of Professional Compliance Consultants.
