Lee Coates: Road map to new advice processes

Their recent Roadmap sets out the UK Government’s ambition to make the UK the best place in the world for green and sustainable investment. But what does this mean for the advice profession? ESG Accord’s Lee Coates has some powerful predictions as to how and why things are set to change and why you shouldn’t leave it too late to adapt.

On 18th October the Government released its Greening Finance: A Roadmap to Sustainable Investing document. Cutting it a bit fine, but it made it out into the world just before COP26.

The document sets out the Government and Regulator’s strategy for embedding sustainability into the UK’s financial system, its ambition to green the financial system and align it with the UK’s net zero commitment.

The majority of the proposals impact directly on product providers and Fund Management groups. But make no mistake, these proposals will quickly flow through the whole investment ecosystem. Products/funds will need to be overhauled to meet the new rules. The significant increases in ESG propositions over the last year are in part based on existing rules, but the plans outlined in the Roadmap will accelerate this change even further.

Blah, blah, blah?

Wait, I hear you cry, does more and more ESG funds mean more and more greenwashing? No, I don’t think it does. That’s not to say that product providers won’t try to stretch things in their favour as much as they can, but the Roadmap makes specific reference to cultivating an environment where consumers, and by association their advisers, can place greater reliance on what companies say.

The Government is keen for some consistency in the language used, with a great emphasis on “show and tell”. Fund groups will have less room to claim they do something without being able to provide the hard evidence. We might see an end to claims of “investing in our funds has a really positive impact” unless this is followed with measurable details about the actual impact the fund is having. Words are not enough – actions, data and transparency will build confidence amongst investors and their advisers.

Time for action

Ok, so the main impact of the Roadmap document will fall on providers, so does that mean advisers can sit back and let it all wash over them? No, not really. The Roadmap confirms that rules will be coming for advisers, but well before they arrive advisers are going to be impacted by the changes forced on product and fund providers. That’s because most funds will be moving to, at the very least, an ESG strategy and advisers need to be informing their clients about how it works and, critically, why managers are moving in this direction. If advisers are not having such conversations with their clients, they risk the clients doing it – with another adviser. We are likely to see lots of “I’ve come to you because your web.

What’s in a label?

Then there’s the new Label system identified in the Roadmap. Advisers need to have a new advice process in place to discuss these with their clients. Those funds that do not apply any ESG or sustainable processes may need to show a label such as ‘Non-Sustainable’. It is likely to generate some interesting discussions with many clients who haven’t been asked about their sustainable preferences, around why the adviser is promoting a ‘nonsustainable’ fund!

Questions, questions, questions

There seems to be a misconception amongst some advisers that there is a direct link between clients not asking about ESG and, by extraction, clients not being interested in ESG. The two are completely different things. Lack of knowledge is the most likely cause for lack of questions, but that has nothing to do with lack of interest. It is incumbent on advisers to follow the existing Know Your Client and PROD requirements. How can any adviser know their client if they haven’t asked about their values? By comparison, how can any adviser understand a client’s attitude to risk and capacity for loss if they don’t ask? Few clients rush into an adviser’s office demanding to discuss their Attitude to Risk, so on that basis advisers would never mention AtR because “clients just aren’t interested”

A duty of care

There is increasing acceptance that financial advisers have a duty of care towards their clients. That care is based on mutual trust; the client relies on their adviser to draw out the information needed to be able to offer personalised and suitable advice. It is not the client’s duty to learn about the machinations of the financial system before coming to an adviser. If they did that, they may as well look after their own finances and deal direct (beware ESG robo-advice!). Advised clients have a personal connection with their adviser, so why avoid having personal discussions about a client’s values? All journeys, and especially financial ones, start with good planning; so all advisers need to put the advice and compliance processes in place now to ensure their clients understand how ESG and sustainable finance issues are going to impact on their journey. Doing it tomorrow may be too late.

About ESG Accord

ESG Accord provides a packaged compliance framework to firms so enable them to handle all ESG & Sustainability preference outcomes. This will increase your firm’s suitability outcomes, fund strategies will genuinely meet client needs and you’ll be meeting your PROD requirements as a distributor. Trust and transparency are increased, and the client is more engaged. For more information contact: lee@esgaccord.co.uk

About Us

​IFA Magazine – for today’s discerning financial and investment professional.

Published ten times a year, IFA Magazine has been winning a keen and enthusiastic following among Britain’s premier financial advisers, planners and paraplanners.


    Follow Us

    © 2022 All rights reserved​ to IFA Magazine | Website by: Nivo Digital | Terms and Conditions

    Keep updated on the most important financial events 

    Make sure you are an informed

    wealth professional..

    Adblock Blocker

    We have detected that you are using

    adblocking plugin in your browser.