Institute of Financial Planning supports campaign to encourage “social investment”
Posted on: 19 Jun 2012 by James Farmer

Following on from IFA Magazine’s recent article on social lending  (Credit Where It’s Due – Emma-Lou Montgomery’s got tuppence to spend and tuppence to lend, and a highly profitable way of earning a halo: So here’s the deal. Your client is tired of making 3% from his building society, and he doesn’t want to lock up his money for five … Read more) :

Financial planners can play a pivotal role in growing ‘social investment’ – the take up of products that have a measurable positive social impact – according to the report published recently by Nesta, the UK’s innovation foundation.

 

‘Financial planners as catalysts for social investment’, shows that, as gatekeepers to the financial affairs of wealthy individuals who may be interested in making social investments, financial planners have a growing opportunity to serve their clients better by informing them of new social investment products and opportunities.

The report, written by Antony Elliott (CEO of the Fairbanking Foundation), Gavin Francis (founder and Director of Worthstone) and Geoff Knott (a UK social investment practitioner with international experience) provides recommendations on further action required by product providers, FSA accredited bodies, Government and regulators to ensure that the social investment market reaches maturity.

Key findings are:

• Social investment would come from client funds surplus to an allocation that ensures financial security; the most appropriate client is likely to be a ‘high net worth investor’ (HNWI).  In fact, client demand from HNWIs will ultimately drive financial planners to become involved in social investment.
• At present it is highly unlikely that many financial planners have a good understanding of which clients would be receptive to social investment opportunities. The  factfind/discovery process provides the opportunity to explore a client’s motivations around using part of their capital to generate a social return as well as a personal financial gain, and the report includes recommended questions to open those discussions with clients.
• Both financial planners and clients need to  understand and recognise social investment as a distinct new asset class that is separate from straightforward financial investment and giving/philanthropy.
• Early adopters within the financial planning profession are likely to be those with a desire to do some social good through their work. This is not the same as those that have socially minded clients, although there may be a considerable overlap.
• Social investment product developers need to keep products as similar as possible to existing ones with which planners are familiar.  Financial planners want to deal with product structure issues relatively easily and then focus on why a client may be interested in anticipated social outcomes.
• Clear and effective communication of information to both investors and financial planners will be essential.  As with any new asset class, there is also a need for profile-building to educate the financial planner and the client.
• The regulator will need to provide clarification over how suitability should be understood for social investments. This will help planners to advise their clients in the current, cautious, financial advice market.
• The current tax regime does not encourage social investment; in fact lack of tax incentives adds a layer of uncertainty on the societal value of social investment.  A new tax incentive would create significant new interest from financial planners in social investment.

 

Nick Cann, Chief Executive at IFP comments “This work to develop an effective market for social investments is welcomed by IFP. Not only would a successful outcome provide greater investment choice for consumers but it would also create opportunities for broader gains by society as a whole.”

Gavin Francis, Founder and Director of Worthstone, says: ‘At this time of significant change in the advice arena, social investment offers a rare and important new opportunity to the financial planning community. The report acts as a vital roadmap for all those interested in optimising the unique ‘win-win’ that social investment can deliver for individuals and the society within which we all live.’

Joe Ludlow, Director at Nesta, says: ‘This report provides clear recommendations for key stakeholders who are involved in the individual social investor supply chain. The potential appetite for social investment amongst this segment of the investor base is clear – we hope these recommendations can be acted upon to strengthen and grow this flourishing new asset class.’

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