How a planner can help you invest ethically
Believe it or not, you can grow your retirement nest egg and do good at the same time, especially with the help of a good financial adviser.
A website recently launched by the Responsible Investment Association of Australasia (RIAA) reveals the wide choice of ethical and socially responsible investment options available in Australia and New Zealand.
Many of these options are offered by well-known and experienced investment managers, but their approaches to responsible investing can vary widely.
Some just avoid investments in areas such as tobacco or fossil fuel companies. Others skew their investments towards companies and themes that will have positive impacts on the environment – for example, renewable energy, green property or recycling and waste management. Some do both.
Still others use their share ownership to engage with the companies they invest in and to try and get them to improve their practices for the greater benefit.
As Paul Garner, CEO and founder of Novo Wealth, observes: “It’s a myth that by investing according to your values, you have to sacrifice performance. That’s no longer the case.”
There are many reasons for this.
For example, ethical companies often thrive because they target industries of the future, that solve problems and result in the more efficient use of the earth’s resources, says Garner, an Adelaide-based financial planner.
In addition, a focus on environmental, social and governance (ESG) issues can suggest that these companies are managing risks, including those such as climate change and human rights issues, more carefully. By doing this, they are creating more sustainable companies and are eliminating possible threats to their earnings or reputation.
That said, Garner notes that not all ethical investment managers are the same. Their fees and charges can vary widely, and their different approaches to investing can also lead to large differences in their returns.
For example, cutting out some investments, such as mining and fossil fuels, could cause an investment portfolio to underperform the market and over time accumulate less for someone to retire on.
This poorer performance can be especially true in the Australian market which is skewed towards mining and resource companies.
But that’s exactly where a good financial planner can make all the difference, says Garner.
His starting point when working with a client is to clearly define and understand his or her values – be that a concern for animal cruelty or the environment, or a desire to support more sustainable energy via windfarms or solar power.
Then, he examines if these values can be aligned with existing products and investment options already available in the market.
“There are a range of pre-packaged options available,” says Garner. “But if there isn’t a match to be made with what’s available, I will then design or customise something for my clients. And that’s where the real skill comes in.
“We are not only customising it to fit your ethical values, but we also have to ensure it will perform for you over the long-term.”
So, depending on the person’s needs, Garner, who specialises in helping clients invest ethically, could put together a portfolio of direct local and international shares or managed funds.
“It usually depends on how they want to go. It could also mean setting up a self-managed super fund (SMSF),” he says.
Garner cautions that many of the pre-packaged options available on the market charge high administration and management fees.
“A good financial planner can help tailor your investments to your specific requirements at lower fees, compared to some of the investments options available,” he says.
Added to this, he says there can be “different shades of green” and a planner who is knowledgeable in this area can help guide you through this maze. “That planner has to understand the minutia and must spend a lot of time talking to fund managers to understand what each does.”
Garner adds that a qualified planner will also provide you with a wholistic planning service, which may include broader assistance in areas such as wealth protection, estate planning and finding further ways to meet your goals.
Consider speaking to a CERTIFIED FINANCIAL PLANNER® to assess what ethical investments match your values and which investment strategy would better suit your needs.
Online source: Produced by The Financial Financial Planning Association of Australia and published on 21 February 2018. Original article.