Advisers risk missing out on responsible investing surge

New Zealand investors put a record amount of money into responsibly invested funds in 2016, but advisers are still lagging in their understanding of ethical investment, the Responsible Investment Association Australasia says.

Wednesday, August 2nd 2017, 6:00AM

by Susan Edmunds

Its latest report shows that FUM in negatively screened funds grew 2500% over 2016 to reach $42.7 billion at the end of the year.

Chief executive Simon O'Connor said that was driven by the public outcry when it was revealed that a number of KiwiSaver funds were investing in cluster bombs and other controversial weapons. That led to many providers pledging to drop the investments.

He said the increase in the proportion of funds responsibly invested, from 2.5% of the market to more than 60%, was the fastest growth ever seen globally.

"This is a staggering increase and is a monumental development for New Zealand's financial markets," he said.

"We have never seen a market switch so rapidly to responsible investment. It's one of the most significant global changes to happen to the sector in 2016 and highlights that New Zealanders are not prepared to building their retirement savings at any cost."

He said advisers were increasingly approaching his association wanting to understand what options were available for clients. Client demand was forcing them to get their heads around it, he said.

But he said there was still a gap.

He said, when the association polled consumers, it saw high levels of interest in responsible investment. "But financial advisers are still playing catch-up to understand this. They are really important gatekeepers for the industry.

"There's a possibility now that client demand is so high that there is a risk advisers will lose clients or mandates if they are not sufficiently skilled around responsible investment."

He said many advisers would argue that their clients never asked about responsible investment.

But that was to be expected. "How about you ask them? If you're looking at the best interests of clients, asking what they want to be targeting, what they want to invest in, that should be a critical part of knowing your client. You might find all of a sudden that clients really do care."

He said it was a myth that responsible investment meant having to give up returns.

RIAA data showed that balanced responsible funds out-performed their indexes over the past three, five and 10 years.

"There's a perception of a lack of depth in offerings," O'Connor said. "But in the last two years in particular in Australia and New Zealand there are a lot of new products coming to market."

RIAA certifies financial advisers, a process which includes auditing their fact finds to check they are asking the right questions and that their approved product list contains the right products. O'Connor said interest in that was growing strongly.

It now has eight adviser members in New Zealand: Henry Ford, Jocelyn Weatherall, Richard Knight, Janet Natta, Marie Quinn, Pete Lee, Jonathan Neal and Rodger Spiller.

Tags: financial advisers KiwiSaver responsible investing