3rd March 2016

'Appetite and barriers' explored in FCA Social Investment Review

I am currently working on responding to the FCA's Social Investment review. After all - what could be more fun?

I have reservations about the FCA having lumped Social Impact Investment (not really my area!) in with ethical/sustainable investment options (my area!) in this review.  I am also concerned about possible outcomes of this review for the adviser market... 

So Panacea Adviser seems like a good place to ask for advisers their view on this area. There is a link below if you'd like to reply the FCA directly.

So for some background... To my mind 'Social Impact Investment' and 'Ethical/Sustainable/SRI investment' are very different animals.

The former (Impact investment) can be hugely interesting but is rather niche, higher risk and generally not well supported by advisers.  Investors in such options do not generally enjoy as much protection as they do when investing in ethical/sustainable life, pension and OEIC options - which are typically highly regulated, retail, onshore collective funds.

The latter may be harder to explain, more nuanced and a bit too mainstream for some.  This is however borne of fund managers aim to attract a wide range of investors - which is generally a good thing.

The paper does however shine a light on the fact that there are many investors for whom the effect of where they invest (ie the 'impact') is important and the fact that advisers may be asked to support new social enterprises. It also appears to do a good job of explaining 'social enterprises' a topic that many of us will know little about but may find increasingly useful.

So the FCA has a point.  Social investment and ethical/sustainable options may appeal to the same people (and there is clearly an advice gap in this area) even if they are very different and not necessarily appropriate for the same people. And of course advisers may become involved at a number of levels... particularly as this area is growing fast.

When talking about investments I tend to refer to Social Impact options as 'icing on the cake' options.  By contrast my view on ethical/sustainable/SRI options is that these can and often should form 'the cake' for the many people who care about (or hope to make money out of) topics like the likely transition away from fossil fuels, sustainability themes or other investment related 'personal' interests.

Both are of course totally different from charitable donations - which I am not exactly delighted to see appear in one of the questions.  I understand both can bring positive outcomes and may appeal to the same people - but to my mind giving away money and investing it are - err - different.

I understand that when it comes to Social Impact Investment PI cover can be a concern for  advisers – particularly those who are new to the area - but I also see ignoring this general area as at best a missed opportunity and at worst a potentially risk (if client’s needs go unmet).

If this brief paper helps advisers to meet clients ethical, social and environmental aims in an appropriate fashion and generally better – this consultation will turn out to have been valuable.  This 'need' (FYI) is why I launched www.FundEcoMarket.co.uk  - the free to use, adviser friendly online tool and fund hub - which is linked to on various areas of this great new site.

I’d welcome readers thoughts on the following three FCA questions in particular -  in advance of 14 March... 

Q3 Have you experienced problems in advising investors who wish to invest in social enterprises, or for whom investment in a social enterprise may be suitable? If so, please provide details of those problems. (This question is for advisers only)

Q4. Have you identified barriers to investment in the social sector for retail investors? If yes, please provide details of these barriers, in particularly identifying those that may be caused by regulation.

Q6. Do you have evidence (eg figures, case studies or other practical examples) of the appetite retail investors have for social investment related products, particularly compared to donations.

Click here for the full document

By Julia Dreblow at sriServices - contact Julia@sriServices.co.uk

Thank you in advance.

Regulation, Investments, FSA/FCA, Ethical/ESG