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Counting the cost

17 October 2014

Huw Spanner hears tips for people who are interested in banking, investing, and saving more ethically, but who are unsure where to start


"MONEY makes the world go round." So the saying goes. The organisers of Good Money Week, running next week, want to help the world go round the right way. But can people who, perhaps, do not have large sums of money to invest, make any difference to the financial sector?

Derek Williams, of True Potential Wealth Management LLP, based in Newcastle upon Tyne, suggests so. The easiest place to start is to look at any existing pension fund(s), he says. "If someone on £24,000 a year has a modest fund of £60,000, that's £60,000 that can be invested ethically. It's not an issue of wealth, only of how much you really want to make a difference."

Occupational-pension funds are not required by law to have a responsible investment policy, but they must state whether they have Given that fund managers have to consider the long term, Lisa Stonestreet, of Good Money Week, says: "They should be thinking about the environmental and social issues that might have an impact on their investments.

"We get feedback from people who manage pension funds, and they say: 'People are not asking these questions: they're just not that interested.' So, my advice would be: ask questions. If you need help, consult ShareAction [formerly FairPensions].

"If you have concerns about your workplace pension fund - if it invests in gambling, say - you can opt out, and get your employer to contribute to your own separate stakeholder pension. But imagine the impact it could have if a lot of people in a local-authority pension fund, for example, instead of opting out, asked for more information."

"If you belong to a final-salary scheme, there's not much you can do: the terms are probably so generous that though you should be able to opt out in principle, you would almost certainly be very ill-advised to do so," Mr Williams says.

"The best you can probably do is write to the trustees and ask them what their ethical policy is, and ask them to take a more ethical stance. But, to be honest, unless a large percentage of the members of the scheme do the same, they will probably ignore you. It's very doubtful that they will have an ethical policy anyway; they'll be focused on maximising returns within risk constraints.

"If you have a personal pension, or are in a contributor-defined employee scheme, almost certainly you can ask the fund manager to move your money to an ethical fund."

WHEN reorganising pensions, or other finance, it is important to get advice from an independent financial adviser (IFA). You can search for one on www.unbiased.co.uk. "If you have just a bank account and an ISA, you don't necessarily need an IFA. But, if you have life assurance, or are developing an investment portfolio . . . talk to someone who understands the field," Ms Stonestreet says.

Mr Williams suggests that people consult an IFA at least once. "In 90 minutes, I can usually weigh up if I can help someone, and how much, or if it's just a matter of pointing them in the right direction, if they're web-savvy. In my experience, most IFAs have a heart for the job, and are happy, at least, to signpost people." Generally, an initial meeting with an IFA is free, he says.

IFAs should be qualified, authorised, and up to date, the director at Moneyology, Mark Hassall, says; and the guarantee that they are is that they are listed on the Financial Conduct Authority's (FCA) financial services register (www.fca.org.uk/register).

"To be absolutely sure, ask any prospective adviser for their 'statement of professional standing'," he says. The statement confirms that the holder is suitably qualified, has kept his or her skills and knowledge up-to-date, and has adhered to a code of ethical standards. Such a statement can be issued only by a body accredited by the FCA.

The managing director of SRI (Investment Services) Ltd, Jeremy Newbegin, who has specialised in the ethical market for 30 years, says: "It's not easy to find an IFA who is really knowledgeable about ethical investment, but it's important to get one who is enthusiastic."

Mr Newbegin was a founder member of the Ethical Investment Association, set up in 1998: a group of IFAs committed to knowledge of the ethical-investment market. A list of ethical advisers is available on their website.

"Very few of them are Christians, sadly," Mr Newbegin says. He believes that ethical investment needs to come higher on many Christians' agendas, and sees the ethics of how we bank and invest as a crucial issue in Christian discipleship.

Mr Newbegin admits that he once believed it did not matter "how you invested your money, so long as you maximised the return - it was what you did with the proceeds that mattered". His perspective changed as his Christian faith matured, however. "I realised that that was a cop-out, and that where we invest is actually very important.

"Unless people invest ethically, or socially responsibly, they will have their money put into companies involved in gambling, offensive advertising, potentially human trafficking. There really should be no other option for Christians wanting to make a difference."

THE website SRI Services, the ethical-investment hub for UK financial advisers, suggests that the first retail ethical fund was launched in the United States, in 1971, by Methodists who did not want to support the Vietnam War financially. In the UK, Friends Provident was the first to offer a fully ethical-investment fund, the Stewardship Fund.

Instead of investing in shares from individual companies, buying into a fund provides the opportunity to pool money together with other investors, which is then invested by a fund manager in a range of assets. These are usually cash (saved in a bank or building society, for example); gilts or bonds (loans to the Government or a private company, which usually pays a rate of interest until the loan is repaid); or equities (shares in private companies) and property.

The fund manager's aim is to grow investors' money and, if required, to provide an investor with a regular income. Exactly what the fund manager buys depends on the investment objective of the fund. The fund manager's knowledge and experience is a crucial factor in terms of the potential level of return on the investment.

EVERY IFA is required by law to do a "fact find" on a new client; so it is a good idea to ask a prospective adviser to send his or her questionnaire, Mr Hassall says. "Some are just a couple of pages - mine is nearly 40 pages long. It gives you an idea of how much depth I go into."

An adviser should work hard to help a client define his or her ethical interests (supporting green technology, or food security, for instance); and approach - negative screening (excluding companies with links to armaments, pornography etc), positive screening (investing in companies whose values, or work, you support), or active engagement (becoming a shareholder in order to influence AGMs).

"The first thing I do is to ask: is it a matter of avoiding or engaging, or a combination of the two?" Mr Hassall says. "I establish attitude to risk, and ability to accept a fall in the value of [an] investment. I explore the depth of interest in investing ethically, and then bring the two things together: capacity for loss, and desire for a clear conscience.

"I marry up a client with funds which align with their sensibilities. [But] it's never going to be an exact science. And, of course, they have to be realistic, because they do need some financial return."

To get the most out of a meeting with an IFA, there is plenty of material online to improve one's financial literacy. Citizens Advice's online Adviceguide provides clear guidance on understanding pensions, savings, investments, and banking. And the Money Advice Service website also provides clear guides to pensions, and various saving and investment vehicles (including Unit Trusts and Open-Ended Investment Companies (OEICs), shares, investments bonds, fixed-interest gilts and bonds, and others).

With ethical issues in mind, Your Faith Your Finance, from the Ecumenical Council for Corporate Responsibility (ECCR) and Quaker Peace and Social Witness, provides a thorough online introduction.

The website Your Ethical Money offers a "one-stop shop for green and ethical finance" which covers banking, investments and ISAs, pensions, insurance, mortgages, credit cards, student finance, and child trust funds. And the not-for-profit social enterprise Ethex claims to offer "everything you need to understand and make positive investments".

BANKING is now widely perceived as one of the shadiest parts of the financial-services market. The scandals that have dogged most of the big banks since 2008 have prompted the movement Move Your Money, which, under the slogan "It's payback time", seeks to make it easy for people to choose, and then switch to, a more ethical current account, or ISA, or a savings or business account.

In the past, the Co-operative was deemed to be the bank for people with a conscience. But it has suffered from its recent news headlines. In the first half of this year, the bank has reported, it lost 38,000 current-account holders.

Based on analysis by the magazine Ethical Consumer, Move Your Money is currently rating a number of building societies the most highly. The Ecology Building Society scores 100 per cent for its savings account.

Move Your Money currently rates Triodos (which plans to offer a current account in 2016) as the best bank (92 per cent); and then Reliance (88 per cent), whose profits support the work of the Salvation Army. These are followed, at some distance, by Metrobank (77 per cent), Handelsbanken (74 per cent), and the Islamic Bank of Britain (74 per cent). Of those institutions that have a strong high-street presence, Nationwide scores highest (64 per cent).

Ms Stonestreet argues for engagement with the big banks rather than disinvestment, however. "If everyone was asking questions of their bank: 'How much money do you invest in local communities, or education?', or telling them things they weren't happy with, the bank would . . . have to do something about it."

The Archbishop of Canterbury has urged churches to support credit unions (community-based not-for-profit co-operatives required by law to make loans at a fair rate of interest and to educate members in money management). The web- site www.findyourcredit-union.co.uk can help to locate one.

ANOTHER, perhaps riskier, option that has emerged through the internet is direct peer-to-peer lending, through websites such as Zopa, Funding Circle, and Ratesetter. This does not necessarily involve ethical considerations, but does cut out middlemen, and allows more community-based finance solutions and grass-rooots lending to small businesses.

A parallel development has been the recent emergence of "crowdfunding". Abundance Generation, for example, invited investors to buy debentures in renewable-energy projects, such as community-owned wind farms, and solar panels installed on the roofs of schools, in what it calls "democratic finance".

This is the territory of "impact investment" - designed as much with an eye to a social return as to the financial one, like the UK Social Bond Fund, launched last year. Although both of these examples are regulated by the Financial Conduct Authority, however, some advisers urge caution. "It's easy, if you like a good story, to be manipulated into buying a wolf in sheep's clothing," Mr Newbegin says.

From April 2015, as announced by the Chancellor in the last Budget, it will be possible to buy peer-to-peer ISAs, which will allow savers to lend to small businesses and social enterprises (for example) without paying tax on any return.

In principle, these can offer a good return on pro-social investments; but, unlike cash ISAs, they will not be protected by the Financial Services Compensation Scheme. Mr Hassall urges caution. "A good rule of thumb", he says, "is that if anything sounds too good to be true, it probably is."

 THERE can be a cost to conscience. "Over the past ten years," Mr Newbigin says, "the FTSE All-Share index has consistently outperformed the FTSE4Good; so you would not have made as much money with FTSE4Good, and you would still have lost money in the crash of 2008.

"There are about 4000 unit trusts and funds in the market at the moment, of which only just over 130 are ethical or socially responsible. Obviously, a narrower choice means you have less opportunity to maximise your return, though quite a few ethical funds have done very well, and one or two have done exceptionally well.

"That said, if you asked most people 'Would you like to know that your money is aligned with your beliefs, and will also give you a reasonable return in the long term?' - and I emphasise the long term - I think a lot of people would be happy with that."

The secret is, he says, is to weigh your "capacity for loss" - your ability to accept a reduction in the value of your investment - against your desire to invest ethically, "so that, one way and another, you can make decisions that enable you to sleep at night."

"Over the long term, in general, they do pretty much the same," Mr Williams says. Some investments will rise; some will fall. "Maybe, marginally, they don't do quite as well, because there are many fewer of them, and obviously the wider you spread your investments the safer they're going to be; so you may lose a little bit on diversification, but it's not like you're going to lose three per cent a year because you're ethically minded."

ETHICAL questions can be asked elsewhere in the financial-services industry, too. "When you buy insurance, for example, you may want to be confident that the insurer is investing your premiums in line with your beliefs," Mr Hassall says. Some people are concerned to screen out only pornography, say, or gambling, but others want to look deeper.

He recalls a client in her late seventies who was determined not to put her money in armaments. "I drilled down into the companies that Standard Life were investing in, and I found one impeccable little business that was making filters for kidney machines. But I discovered that the filters were also being used in nuclear submarines."

If you have an IFA, it is possible to ask them to look at your insurance providers. The Your Ethical Money website also has a section on insurers (www.yourethicalmoney.org/ insurance).

Ethics is such an immense can of worms that many people, Christians included, would rather not lift the lid on it at all. None the less, Ms Stonestreet says, it is better to take even one step towards sustainability than none at all.

"Some people say: 'You can't be just a bit ethical,' but whatever people can do is to be encouraged. Even when people say they are concerned only about their financial return, I say: 'Fair enough, but you might want to think about the fact that environmental and social issues may have an impact on that return.'"

One example of that is the fast-growing new campaign that urges churches, universities, and cities to divest from oil and gas companies before the "carbon bubble" bursts. The argument is that ever-tightening regulation of carbon-dioxide emissions will oblige them to leave much of their reserves in the ground, which will render them worthless as "stranded assets".

"These companies may be tremendously overvalued, in which case the people who are invested in them are heading for trouble," Ms Stonestreet says. "What is exciting is that there are so many more options for investment now that allow people to express their values in where they put their money."

"When I started to specialise in 1994, we had six ethical funds to choose from," Mr Newbegin says. "America is ahead of us: about 25 per cent of all invested money there is now invested ethically, whereas in the UK the figure is about seven per cent. If all the money in the hands of British Christians and churches was invested ethically, the potential impact is absolutely huge."

Mr Williams points out that the sector still has a low profile. "When I talk to people, Christian or not, if I don't mention ethical investment, 99 times out of 100 it won't come up. But if I ask: 'Have you thought of investing ethically?', most people quite like the idea. Often, they'll say they'd like to invest ten per cent of their money ethically, just to get the feelgood factor.

"[But] I don't think that most Christians are yet alive to this question. Many churches and Christian charities have never really thought these things through. I think the controversy about the Church of England's shareholding in Wonga has helped, because it has shone a light on the issue. And, as Christians see the Islamic Bank doing well in the comparison tables, I think that that, too, will make them think."


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