Well, provided the firm can demonstrate that they have asked every client for their views, have recorded the views on file and incorporated these views in the suitability letter with an appropriate outcome, then all is well. Provided, of course, that the file also demonstrates that the client was able to make an informed decision. The normal “Do you want ESG?” question is rather pointless if the client doesn’t know what ESG is!
You might ask why I have laboured the ‘educate, ask it, record it and repeat it back’ elements above. Two words – Consumer Duty. This new overarching regulation has, at its core, the principle of delivering best client outcomes. According to the FCA’s own research, 80% of consumers would like their money to “do good”, but this doesn’t match the very low levels of advised clients who invest in-line with this ‘do good’ objective.
As Consumer Duty requires advisers to understand client investment preferences and objectives, how can any adviser meet their Consumer Duty obligations without asking every client if they have any ESG/Sustainable investment preferences and objectives?
As the FCA has repeatedly confirmed, Consumer Duty references the COBS 9a rule relating to understanding client objectives AND that these objectives could include ESG and Sustainability. If advisers don’t ask, they can’t know. Put bluntly, if they don’t know, their advice isn’t compliant.
Then there’s the forthcoming Sustainable Label rules, which will sit complimentary with Consumer Duty obligations. Either funds will show one of three Sustainable Labels, or they will disclose that they have no sustainable investment strategy. Advisers will be required to provide information on each product/fund’s sustainability credentials direct to each client at the point of recommendation.
The Sustainable Labels regime will encompass Tax Efficient Vehicles (TEV), alongside conventional investment options. This is going to require TEV providers to address ESG and Sustainability aspects of their investment decisions or disclose that they don’t take any of these factors into account. If the latter is the case, then advisers need to decide if this introduces an extra level of risk to a provider’s offerings.
So what is my call to action? It is for all advisers to introduce investment preferences and objectives questions into their advice process now, and that will include asking if clients have any preference for ESG/Sustainability.
Please get in touch with ESG Accord admin@esgaccord.co.uk to find out how your firm can access our full spectrum investment preferences and objectives compliance framework.
