Is MPS the solution for sustainability when advising clients?

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  • 38 mins 28 secs

Learning: Structured


  • Tom Buffham, Portfolio Analyst, Brewin Dolphin
  • Lee Coates, OBE, Co-Founder, ESG Accord
  • Rob Gleeson, CIO, FE Investments

Learning outcomes:

  1. The challenges of adding sustainability to an MPS
  2. The pros and cons of outsourcing investments via an MPS
  3. How the MPS market is developing sustainability options

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PRESENTER: Hello and welcome to Akademia with me Mark Colegate. In this learning unit, we are focusing on MPS. And we ask the question, is it the solution for sustainability when it comes to advising clients? We’ll discuss that topic. I’m joined here in the studio by three panellists, let’s meet them. They are: Lee Coates, OBE, co-founder of ESG Accord; Tom Buffham, Portfolio Analyst at Brewin Dolphin; and Rob Gleeson, CIO FE Investments, part of FE fundinfo. Now, let’s have a look at today’s learning outcomes. They are: the challenges of adding sustainability into an MPS; the pros and cons of outsourcing investments via an MPS; and how the MPS market is developing sustainability options.

Well, Lee, we’re talking about sustainability and managed portfolio services, why is this such an important question for advisers particularly now?

LEE COATES: Well, most advisers are not really aware of the regulatory requirements that they’re under at the moment. So, with PROD and COBS rules requiring them to ask ESG and sustainability questions, we feel that - ESG Accord - that advisers should be sort of putting a toe in the water in this space, and MPS is by far the most viable solution for them, because to pick funds from all the range of ESG and sustainability options is just not viable.

PRESENTER: And tell us, you mentioned ESG Accord there, what’s your knowledge and expertise in this market?

LEE COATES: OK, 31 years as an IFA, and I set up and ran an ethnical research company, but ESG Accord is providing compliance support services for advisers, so we’re looking at supporting advisers from the point of contact with the client, asking them about their ESG and sustainability preferences, and taking them up to the point at which they’re picking products. So it’s that support package that advisers really feel that there is no other support around that at the moment.

PRESENTER: OK. And, Tom, tell us a little bit about how you’re thinking about sustainability and how you integrate that with MPS at Brewin Dolphin.

TOM BUFFHAM: Yes, it’s quite a challenge. So we’ve tried to lay out our stall so that there’s something for each different level of requirement. So we have our standard MPS service that is a responsible investment philosophy, so integrates ESG as part of that process. But then for clients who do have greater requirements, want to go further, we have the sustainable managed portfolio service range. And that includes some ethnical screening as well as doing a lot more on the stewardship and engagement there. But equally we have a bespoke service, DFM, for clients that want a very tailored approach. So we’ve kind of got a full range across responsible investment there.

PRESENTER: And Rob, tell us a little bit about how you go about structuring things at FE Investments.

ROB GLEESON: Yes, at FE Investments, we’re a peer playing PS, so we don’t have the bespoke element. And sort of verging on what Lee was saying actually because we’ve taken the PROD side very seriously, so we’ve tried to determine what the client segments would be, what the spectrum might be of how responsible, how sustainable people might be, and then we have slightly unusually quite a wide range of portfolio ranges, so we run four separate ranges which all have varying degrees of sustainability and ESG baked into them.

PRESENTER: And Rob, talking about this, I mean there’s a lot of big words. You used like responsible, sustainable, ethical. Everybody seems to be rebadging their funds and launching new funds, so how tough is it to keep on top of that at the moment?

ROB GLEESON: It is very tough. And I know you’ve got a session coming up on labelling so I don’t want to step on that, but certainly it’s not clear what all these different things mean. And we called our sort of peer play sustainable portfolio the responsible investment range, so it’s responsibly managed. Depending on how the entry breaks down, we might have to change that name. It might end up being sustainable or ethnical whatever label we settle on. But it is a challenge because all of the fund managers are talking up various ESG credentials. Now I don’t think you can buy a fund that’s not an ESG fund. But it’s very hard to translate that to what the client wants. So our clients are IFAs and their clients are retail investors. And they don’t care about ESG, they don’t want an ESG fund; they’re worried about climate change or plastic pollution or something like that.

So you’re trying to take sometimes very opaque investment language and you’re trying to work out what the ESG actually does the process of the fund, does it make a difference? Translate that into an investment solution that the investor cares about and then communicate it to them. So this huge plethora of funds that have launched has just made it much harder to try and fit the right solution to the right client we’ve found.

PRESENTER: And Tom, just digging into that a little bit more, I mean obviously there’s a real press of regulation coming along, and we’ve alluded to that, but as you’re out and about talking with clients, have you seen much interest in this from the consumers themselves?

TOM BUFFHAM: Well, like Rob, most of my direct customers are IFAs, and there’s quite a variety of responses, I think. Some IFAs are quite a long way in the curve. They’ve been really thinking about this for a little while and they’ve got their suitability questionnaires all lined up. And so they have a clearer picture of what they’re looking for. But equally there’s some who are kind of waiting for that regulation to come through, a bit clearer guidance, they’re nervous about accidentally misleading clients. Because it isn’t clear exactly how a client should be categorised, because as Rob mentioned there’s just hugely different requirements for individuals, and how to bucket people into the right type of investment is a big, big challenge.

PRESENTER: And Lee, in your experience how much time are advisers spending thinking about which is the right sustainable MPS to use, or is there a bit of a sense of as long as it’s got sustainable on the label job done?

LEE COATES: I don’t think there were too many advisers falling into the thinking about it a lot, I think there are far too many still not thinking about it at all, and then others as Tom said that have sort of pretty well embraced the subject. So I think the hard graft for the industry is to bring on board those advisers that, I suppose worst case scenario, are in denial about the subject. There’s a loop that goes around quite commonly amongst financial advisers, which is if my clients are interested they would ask, they’re not asking so I don’t need to mention it. And that’s a sort of a negative loop and it’s incumbent upon the advisers, especially under PROD and COB rules and consumer duty coming and the label regime coming, that they need to be proactive and actually broach the subject with their clients.

PRESENTER: So Lee, if you were an adviser, how would you go about trying to find out what your client wants and importantly make sure that you’re not framing the questions in a way that you get the answer back you want, not necessarily the answer the client wants to give you?

LEE COATES: I mean that’s a really good way of putting it. Advisers need to be completely agnostic about the whole subject. So, falling either side of the agnostic line, if you like, which is dismissive, oh do you want this sustainable thing, or evangelical, this is absolutely brilliant, everybody should be into it. It’s not the adviser’s job to be either side; it’s simply to say in the same way as asking attitude to risk, I need to draw from you this information so I can make the best recommendation, whether it’s attitude to risk or sustainability or ESG. So it’s about, advisers need to be comfortable with the language that they are going to use, because there is no industry standard at the moment. So as long as advisers are comfortable that they understand what they mean, they articulate that message to the client, so the client understand what the adviser’s talking about, and then I think you’re then able to adopt a more sort of joined-up approach and that will lead naturally through to finding the best MPS.

PRESENTER: Well, Tom, on that point, how do you, when you’re dealing with advisers, how have they gone from trying to work out what their clients want to then mapping that on to an MPS, and particularly you’ve got various offerings within your system, so how do they link those together?

TOM BUFFHAM: Yes, I mean it’s about due diligence. I mean that’s why we have different choices, because I think, well, invariably a client base won’t just want one proposition, they’ll want different choices. Now, you can’t produce a thousand different options, so we’ve come across two which we think capture the main segments of the market. And what we try to do is give that, offer the choice of those two to advisers. So they can either pick something which does meet specific ESG criteria, but we’re also very clear to communicate what it doesn’t do. So, for example, we make it very clear that this isn’t an impact product. I think it’s very difficult to claim impact on anything that has that daily liquidity, because effectively it’s buying stocks in the market and it doesn’t really give money directly into specific causes or driving specific change like perhaps an infrastructure or private equity vehicle might. So, for us, it’s very important to be clear about what each product does, why it does it in a certain and therefore how it can meet client needs, but also part of that conversation is what it doesn’t do and so where they might be seeking something different for their client. So it’s clear delineation.

PRESENTER: But in a nutshell, I mean you mentioned a responsible version and the sustainable, I mean how would you summarise the difference between the two?

TOM BUFFHAM: Yes I think the key difference is about the client and how much they want from their product. So, a client that wanted to be aware of ESG issues but it wasn’t the key decision making factor, it wasn’t a part of their raison d’etre to invest, versus a client that really cares about these issues and they really are motivated by their money doing good as well as performing well. And that kind of client would perhaps be happy to sacrifice some return or at least experience a different performance profile, because we do see some differences in how those two products perform. Ironically, the more sustainable versions over the past 10 years have performed better, but that is not guaranteed, and actually since the beginning of ’22 there’s been a bit of a shift and those sort of products have performed a little bit worse. So as long as the client understands that and that the reason they’re making the decision is not performance reasons, it’s actually because the product matches their non-financial objectives, that’s the key.

PRESENTER: Thank you. Rob, I mean we’ve talked about this ongoing regulatory pressure, I mean can you see a day coming, not too far off, where frankly every MPS is going to have to be responsible. Because that’s the way the world’s going, so actually if you haven’t done anything, just sit tight, you know, your MPS provider will solve the problem for you.

ROB GLEESON: Yes, for sure, and we always make a point to clients, we have a responsibly managed portfolio range. But I do try and explain there’s no irresponsibly managed range, we are responsible investors. And then it’s about priorities, as Tom was saying. It’s perfectly OK to be into responsible investing and also be into low cost investing. It means you have some compromises to make and maybe you don’t maximise your opportunity to invest in investments that have clean energy or impact things. But it’s still perfectly possible to manage your money in a responsible way. But to your regulation point, I think the regulation’s going to go down two lines, and it’s unfortunate that it’s been delayed so far because that lack of clarity is really hurting the IFAs. But if you look at the MiFID regulations, they make very clear about understanding your clients’ values and reflecting those in your segmentation and in your suitability, but also it talks a lot about sustainability risk. And sustainability risk is not a value, it’s pass/fail. So I think we’re probably, I don’t know, five years away from the first no win, no fee, were you missold an unsustainable investment type ambulance chasing ad. And certainly as an MPS provider we’re going to have a duty to demonstrate to all of our clients that we have addressed sustainability risk and the sustainability risk within all of our models, whether the client has a preference for responsible investing, sustainability or whatever is appropriate.

So you’re going to see some conversions as sustainability risk becomes far more prevalent and it’s far more incorporated into portfolios. But I think there’ll be a better range of things of, well, how do you then reflect client values? And we’ll come up with different strategies. The way we reflect client’s sort of values and their preferences, responsibility and sustainability is different from Tom, it’ll be different from lots of people’s.

PRESENTER: And, on that point, I mean are you getting a sense that the regulator will have its own definition of what it means by sustainability and responsibility, so if there are any problems down the line, you know, there is a default definition that everybody can go back to.

ROB GLEESON: Yes I mean that’s partially what the label regime is going to be bringing. So that the regulator will be saying to funds, you need to define your ethos or your strategy alongside one or more of labels so that advisers and their clients can actually say OK I understand the headline theme for a particular fund, whether it be impact or transition or sustainable, and then funds will then be required to articulate how they do what they do. So, from a regulatory perspective, it’s not a question of sort of an overregulation or over-prescription about you must do this or you must do that, this simply says you’re going to have a label, pick the label you feel most articulates, best articulates how you do what you do and then show how you do what you do. And that’s where openness, transparency comes in.

I mean to some extent we cover that within our MPS report, ESG and Sustainable MPS report which advisers can access for free. So we’ve pooled all of the information from the MPS providers together in a place where advisers can go and actually make those comparisons, in front of clients ideally because they’re soft areas. You can compare all the hard facts, performance, P/E, pricing, platform availability, those are hard facts; the soft facts are, this is how we define sustainability as an MPS provider, this is how we run our funds. And clients can look at two or three options and go that’s the one that calls to me, that’s the one I want to go for.

PRESENTER: And Tom, given that everybody’s values are slightly different from everybody else’s, if there’s more and more interest from consumers and advisers in what their portfolios look like, do you think there’s a big future for bespoking, and down the line is there a point where you might just say well you can have bespoke but you’ve got to have over a certain level of assets on the management or it’s just not worth it?

TOM BUFFHAM: Yes, I mean bespoke is quite useful, because it allows clients to really get into the nitty gritty of exactly what they want and their portfolio can be tailored for that; however, there is sort of a level where you do need assets for that to be financially, to make sense, and that sort of threshold depends on the adviser and the client, and they decide their own levels there. In terms of what’s useful at a model portfolio level, I mean I wanted to pick up on something that Lee mentioned about transparency because I think that is really important and so we try to do quite a lot on the transparency side so that clients can see what is going on in the portfolio, because we’re aware that they don’t have that level of bespoke client interaction they might get at that higher level of service.

And so we have quarterly stewardship reports, we put out quarterly fact sheets with a lot more detail focusing on some of the funds we pick from an ESG perspective and why they’re good, and we also put scores on all of our fact sheets to demonstrate - so our monthly fact sheets - to demonstrate what is going on in the portfolio, so STG alignment, carbon intensity of the portfolio and the MSCI score. And I do think those are quite good high level views of what’s going on, but we also are quite aware of the limits of ratings providing because you can get very high scoring funds that don’t actually integrate ESG at all but just happen to be in the right sectors. So for us that’s useful to help communicate with the client, but it’s not part of our due diligence when we’re looking at fund managers.

PRESENTER: On that point about reporting, I mean have you got any sort of sense of how easy it is with advisers to engage with this information? Because it’s a fairly new area, fairly new stuff that’s being reported and we’re seeing it on fund reports and so forth.

ROB GLEESON: Yes it is a new area, and it’s also unhelpful that there’s multiple different data providers and you can find two ESG reports on the same fund, one will say this fund is the best thing since sliced bread and the other one will say it’s the devil incarnate, and that’s a challenge for IFAs because without clarity it’s difficult to judge. I mean one of the things I think that we would like to see and certainly are working on internally is just an improved level of transparency across the board. Because again coming back to something you said about regulation earlier, you know, if IFAs are going to ask their clients what their views are on sustainability and what their views are on sponsor investing, the risk is always that you put somebody in a sustainable portfolio or a responsible portfolio, but unless you can answer the question well how sustainable is your current portfolio, how do you know that that was the right thing?

So certainly when it comes to IFAs incorporating all of this into suitability, because I can create ESG reports until the cows come home, but you’ve got to use it to get to a client outcome in a way that makes sense. What we’ve been doing is we’ve been improving our ESG reporting on all of our models. So whether you’re in our responsibly managed range, whether you’re in our hybrid range, high net worth, whatever it might be, there’s a level playing field to compare all of the portfolios on some key issues to that. So things like exposure to controversies, impact alignment, these sort of things, just to give that possibility, you’re into sustainable investing, but everyone’s different, it’s a scale, it’s a spectrum, and is it worth you making a portfolio change or maybe what you’re investing in is sustainable enough? So we’re doing it for our models. But obviously not yet at least no everybody’s in our models. So we would really like to see some sort of standardised reporting on this across the board, some industry standard that everybody can compare the stuff on a level playing field. And it won’t be possible to incorporate this stuff properly into suitability I don’t believe until that’s available.

PRESENTER: And Lee, we’ve talked a lot about MPS, but where does it fit with the centralised investment proposition?

LEE COATES: Interestingly, it sort of, it should logically fit alongside. And I think for most advisers, they could have the world’s best centralised investment proposition, the clients could absolutely love it, but the idea that an adviser can run an ESG-centralised investment proposition alongside it as an alternate, I think that’s where things start to break down and I think where the model portfolio comes in. Because advisers can pick, they can externalise the work that will be impossible for them to do as an IFA. So you mentioned earlier about the number of new funds and the retrofitting of funds, well advisers keeping up to date with that is a nightmare. And also just having an ESG-centralised investment proposition is in my view shoehorning, because you’re saying, you’re not going to get responsible, you’re not going to get STGs, we’re not going to have a look at impact, we’re certainly not going to offer you ethical; you’ve got mainstream or ESG. So I think IFAs can stick to their centralised investment proposition for the clients that sort of want out of ESG and sustainability and then naturally say it’s a specialist area and they use MPS for that solution.

PRESENTER: And if you are looking to outsource, what are some of the things to be aware of? Because we’ve talked a lot about how you make sure that you as the advisers, your clients are, you’ve understood them, you’ve brought that together and talked a little bit about mapping that on, but outsourcing doesn’t necessarily outsource your own responsibility, so how do you make sure that’s a good fit?

LEE COATES: Well, you’re not outsourcing the responsibility; you’re outsourcing the volume of work to the MPS provider. So advisers could set up all sorts of metrics on their standard centralised investment proposition and do the research and due diligence on picking the funds to go in their own CIP. But you have to multiple by a factor of 10 at least the amount of work involved in understanding and researching ESG. So, if you’ve identified client A is happy with sort of a relatively standardised ESG approach then the due diligence required there would be to find an MPS providing that matching ESG service. Whereas the alternative to build an ESG centralised investment proposition is simply to go and look at every single fund in the market, look at what they’re doing on ESG and you’ll then, at the moment you’re multiplying in the high hundreds probably within 12 months, you’re looking at many thousands of options, and that’s the grunt work, part of the grunt work that the MPS provider does is doing that due diligence on the market and the adviser then is doing a matching service. Does the client’s values or do the client’s values match up with the values of that particular MPS?

PRESENTER: Well, Rob, I mean that sounds like a constantly moving world that you’re operating in, so how often would you recommend an adviser just sort of, I would say checks up on what you’re doing, makes sure that everything is still fit for purpose, is that an annual review, six monthly?

ROB GLEESON: Well, it should be at least annual. I think you’re not outsourcing the responsibility. I mean if you ever get a panel together on [unclear 0:22:08] client, please invite me back for that, because there’s a lot to go through. But the IFA has a responsibility to make sure the client’s needs are being met, and that’s ongoing. And I don’t think it would really be good enough to come to the annual review and find out that the client didn’t get what they wanted, so sort of a continuous ongoing monitoring approach. Which is hard to do, especially for MPS, the IFAs are not in control of the assets, they don’t have the same transparency. So it is hard to do. But I think annual at least. But in an ideal world you would have either a scorecard system or some sort of matrix that you updated probably monthly just to make sure, especially if you think like not just on ESG basis, but is the portfolio the volatility it’s supposed to be? We’ve profiled the client. So, and that’s largely what you outsource to MPS for, you trust people to manage this on your behalf, but certainly some sort of ongoing reporting. I guess annual realistically thinking of the work the IFA has to do, an annual review of your MPS and everything is probably the minimum.

PRESENTER: And Tom, given we live in a digital world and it’s actually very easy to convey large amounts of information, how do you make sure that the information that you’re passing, and we’ve talked about transparency, back to the adviser is the most relevant rather than you throw the kitchen sink at it and say the answer will be in there somewhere?

TOM BUFFHAM: Yes I mean it’s sort of our client service. So we have a team of BDMs and sale supports who are armed with a lot of answers. Funnily enough on sustainable and ESG I get a lot of questions in, almost every week there’s a few questions coming in from different advisers, but we store them centrally. So those answers are there for the sale support team just to answer specific questions on advisers. And where there’s a new query or a slightly different query or it needs some timely specific information that question gets fired into me. And those are manageable. And the other key thing is to have enough resource. And I mean you talked about all the extra work that comes from doing ESG research making or a sustainable product, there is a lot more due diligence involved. And we’re fortunate to have a good size fund research team. We’ve got a portfolio management team of six as well. And we’ve got investment specialists looking at the macro research. So we’ve got all of those resources there and that means we do have enough time to do this extra work. Which I think IFAs, they’ve got to meet all their clients, and so they’re a bit more stretched and taking on that extra level of work is more of a challenge.

PRESENTER: But how do you demonstrate engagement? Rob, how would you, whether it’s engagement to stewardship, whether or not it’s been successful, prove it?

ROB GLEESON: Yes it’s interesting you say that because I always used to view engagement as a thing you said when you didn’t do anything. Because it was the easiest one just to brush people off with. But actually as we’ve got more deeply, had our issue process more deeply embedded, engagement is actually the place where we probably make the most difference. And the only way you can do that is through transparency. And you’re talking about all the work you’ve got to do for fund research, one of the most telling questions we ever have with fund managers is show me a stock you didn’t buy because ESG. Like show me where your ESG process has actually made a difference and you didn’t just do what you were going to do anyway and then stick an ESG sort of wash over the top. And so, for us, we’re showing as much as we can where we’ve made a difference. So every month we produce an update. I know you were saying you produce some quarterly stewardship. And we have, these are the outgoing, we have the ongoing engagements we have in place where we’ve either picked a stock or some sort of behaviour that we’re not happy with where you’ve engaged with the fund manager. And the only way you can really sort of demonstrate that’s going on is just to show the outcome.

So we had a case recently where we weren’t happy with one of the stocks in a portfolio on an ESG basis: one, because it didn’t meet what we thought was the sort of state of ESG policies, and also because it could, well, star in like an Erin Brockovich film where they were dumping a load of pollution in a river, and we sold the fund. We sold fund across the whole range. And we put a note out explaining to clients that in all other respects it’s a very good fund, but we think it’s important that we live these values and don’t just talk about them, and we could demonstrate some action. And now it’s a fairly new area so I think a lot of people won’t have those stories or very few of those stories where they can demonstrate material changes happening because of the incorporation of ESG.

PRESENTER: How big was that holding in the fund? Would you have done the same thing if it was the largest holding and made up 7% of the fund as if it was something tiny in the tail?

ROB GLEESON: Well, it’s hard to know. I’m going to say yes that we would have, I don’t know, there’s an alternative universe where I maybe didn’t make that call. The fund was our largest emerging market holding and it was probably one of the premier emerging market funds in the country. So it was a very difficult call to make and I don’t, you know, it’s perfectly possible that the fund we replaced it with doesn’t do quite as well. But what we’re finding is, when you can demonstrate to your clients that you’re putting sort of values into the process and that you’re conscientiously considering these things in a way that you expect that your client will appreciate, you know, it’s not, I know it sounds tripe, but it’s not all about the investment return. People want their values to be incorporated into the investment process, irrespective of whether they were in a responsible investment or not, these are the sort of things that people just, like people on the street just care about.

So we’ve found transparency, disclosure, reporting. It’s a volume of work you’ve got to produce and publish, and until recently we didn’t have a good case study of this is how this stuff makes a difference. But as we do more of it and as it’s done more widely I think it would be very easy to see the firms that have incorporated this properly and can demonstrate that they’re walking the walk versus those that aren’t.

PRESENTER: And Tom, one thing we keep saying as a management is groups merging, taking each other over, does this throw up a particular extra range of headaches now because you crunch two fund arrangers together, it’s not just investment process that can change, it might be those two ranges, a whole idea of what ESG or sustainability or engagement is and, yes.

TOM BUFFHAM: Yes I mean there definitely could be a culture clash as you describe it of sort of ESG philosophies, because yes fund managers do have different styles in the same way they have two different investments slants, you can have a value manager, a growth manager, they would pick very different stocks. That can happen with a sustainability flavour. Someone who is more about engaging and trying to get the bad actors to behave a little bit better would hold very different stocks to a fund manager who’s looking for best in class investments and looking at companies that are already leaders in these fields. So it can create headaches. We haven’t see huge amounts of issues on that so far, yes. But I wanted to pick up on something that Rob was talking about on the controversies and how they engage there, because I think that is really important, and we don’t have such a great case study where we’ve sold a fund. But we think it’s, because our main MPS is also responsible investment, we actually have applied our controversy tracking process which looks into stocks that have done something controversial across our full range, so including the passive holdings. And this means we get a lot of alerts and we have to really distil down the most important issues in the market. And we do react differently depending on which fund range the stock and therefore the fund manager is managing in.

So if it’s in the sustainable it will be a much higher bar for what they do around that controversy than if it’s in the standard MPS. Equally, everything in our standard MPS, all the fund managers are UMPRS signups. So they all have ESG processes so they should all be looking at this and they all claim they are. So we have had a few cases where they have looked at a stock. They’ve said oh that controversy isn’t a big issue. And we’ve come back and said wait a second that’s not how you’ve sold it to us, that’s not what we’ve got in our research note and had to push them a bit harder. And so rather than divesting, we’ve actually escalated. So we’ve gone and talked to their sort of head of sustainability and said well this is what your marketing material says, this is a real live example of what your fund manager has done and those don’t add up. And when we’ve done that we’ve generally seen quite a good response. And we continuously monitor that fund manager going forward. So for us yes engagement works not just at a company level but also at a fund manager level and it’s important. And we do think that is a big, big driver of change. These conversations you don’t see, they’re hard to prove that it’s delivered something, but they are incrementally improving the acts, how people are acting in the industry.

PRESENTER: And Lee, on that, I’ll just call it those points of tension, how revealing can they be? If you were an adviser, how important would that be to sort to say well there’s lots of theory, but this is the coalface, now we’ll tell this which set of values are going to win out?

LEE COATES: Yes I think from an adviser’s perspective, you can crunch all the numbers all day, but at the end of the day there’s a huge amount of trust in this industry and reliance on people being open, honest and transparent. And so from an adviser’s perspective, the principle of show and tell, how good, going back to school, but how good do you feel about the company’s ability to show and tell? There’s a huge amount of show. Rob and Tom have indicated the telling bit is hard work. But advisers should be, without being experts, should be able to get a feel for a company that’s overemphasising the show: yes we’re really good and it’s fantastic and brilliant, but tell me how you did it, tell me why you do it. And those sort of really soft issues are part of the 70-odd questions in our MPS report. So advisers can sit down with clients and actually go through and say does that company articulate its strategy in a way that chimes with you as an individual? So advisers will be the sort of arbiters of that initial filter, and then clients will become probably engaged with their investments for the first time, and the clients don’t really get engaged over issues of pound cost averaging and the alpha and beta on a particular fund. But asking a client to look at how a company articulates exactly what Rob and Tom have done, you know, that is really talking to the investor, and the investor then understands what it is they’re buying and then it’s incumbent upon the IFA at least annually to actually check that that’s still the case.

PRESENTER: OK. Well, we are coming to the end of our time, so I want to pull this together the next couple of minutes, but we’ve talked a lot about transparency, and you’ve alluded to some of the benefits of transparency there, Lee, but Rob from your perspective what are some of the other benefits for an IFA’s business in the round of using this discipline around sustainability and MPS to build a stronger relationship with clients?

ROB GLEESON: Yes, it’s a really useful one because if the investor has come to an IFA and they’ve said I’m interested in sustainability, I’m interested in resource investing, they’ve come with a problem they want solving - and if the client leaves that meeting feeling better about the issues they were worried about, that’s just a huge value add for the end investor. And the world’s a messy place, there’s compromises to be made all over the place, and investors know that they shouldn’t buy stuff from Amazon, but it’s easier and they do, and they have that bit of guilt about it. And I think if you can as an IFA and then a step back, myself as an investment manager, if I can demonstrate to the end client that the world is a messy place and there are compromises involved, but when I’m making those compromises I’m taking your values into consideration and just making the best compromise I can, the end investor will hopefully feel happier about the outcome they’re getting. They’ll feel, you know, it’s your whole life savings and you’re not going to hear about in another year. So have that reassurance that the people looking after your money have your values at heart and then you’ll be overall better, you’ll be happy with your investment and hopefully that’s the value add from IFA.

PRESENTER: Tom, can I ask, essentially the flipside of that question, what are the dangers to an adviser who ignores all of this? What are the potential downsides?

TOM BUFFHAM: Yes, well, there’s the regulation coming. So that’s definitely this looming threat and I think you don’t want to be behind on this, I think the younger generation of clients are more interested in this on average. I don’t want to get carried away because statistics are there and there’s clients in their 80s who are really passionate and really interested in this and leaving a good legacy for their grandchildren. But on average I’d say the younger clients are more engaged with this. So potentially you’re leaving your business behind, your competitors who are taking this into account, and I’m also aware that some IFAs are, if they’re thinking about retiring or leaving the industry, I think having done the suitability properly, being able to evidence that, being able to say you’ve got the full range of options for clients, it makes your business more attractive for someone else to purchase as well. So there’s quite a few different reasons why I think it’s important for advisers thinking about just how they run their business.

PRESENTER: Thank you. Lee Coates, a final thought from you on this.

LEE COATES: I’d just like to pick up on those points and really say that from a risk perspective, advisers need to be absolutely certain that if there’s a challenge in the future from a client, I don’t like this investment or this hasn’t done very well, a complaint is unlikely to proceed just solely on the basis of performance. But if an adviser has left the door open because they didn’t ask the questions or didn’t ask the right questions and it’s not recorded on file, then they are protecting their business, they’re protecting the value of that business, and you’ve got this issue of keeping the money, in a completely mercenary sense, keeping the money in the firm when clients die off. And they will and do. And the next generation, if they have values and those aren’t being incorporated already within the portfolios, it won’t be natural for the client to think I need to force my IFA to adopt these values; it’ll be I’m just going to go to the one on the road, they’ll leap on their phone and go oh they do ESG and sustainability, it says so on their website, right I’m moving granny’s money to that IFA, so it’s protecting the business, protecting yourself from regulatory repercussions. And PI is going to be a big one. We’ve had a massive problem in the industry with DB transfers. The next potential problem on the radar of PI insurers is who is asking the questions, what questions are they asking and have we got a liability in insuring this firm? If the firm adopts the attitude of well we don’t ask about ESG, then how big is the liability in insuring that firm?

PRESENTER: We have to leave it there. Lee Coates, Tom Buffham and Rob Gleeson, thank you very much. Thank you for watching. Do stay with us, we’ve got some information coming up in just a second on how you can use this as part of your structured learning. From all of us here, goodbye for now.

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