Seminar Series: The role of the independent ethical financial adviser

Barry Coates, founder and CEO of Mindful Money welcomed Dr. Rodger Spiller. Rodger has been one of the pioneers of ethical investing in New Zealand. He has played a key role in establishing the key ethical business and investment organisations in NZ. He is an authorised financial adviser and is a certified Responsible Investment Adviser.

Rodger traced the evolution of ethical investing in New Zealand, from the days of divestment against the apartheid regime in South Africa. Barry drew the parallel to the active fossil fuel divestment movement today. Rodger worked to make ethical investment available to New Zealand investors.

The 2001 launch of the New Zealand Superannuation Fund, with an ethical mandate, was a major step forward, followed by the first ethical funds established in New Zealand. The major watershed was in 2016, with an investigation by NZ Herald and RNZ that KiwiSaver investors were invested in tobacco and controversial weapons like cluster bombs. $100m was shifted in the month after the story broke.

Rodger commented that this led to a whole new challenge with the Financial Markets Authority (FMA) saying that with the growing popularity of ethical funds they are now concerned about greenwashing. Rodger explained that specialist advisers can help filter these increasing opportunities for investors. Barry noted that the problem has not been fixed – recent Mindful Money analysis shows there is still over $100m of KiwiSaver investors’ funds in companies that make nuclear weapons. Mindful Money’s website brings transparency to investors, showing them what companies are in their portfolios.

Rodger noted that there are challenges ahead for deepening ethical investment, to focus more on positive impact, and to lengthen and broaden the context, to include a longer term and stronger stakeholder focus. This more holistic approach to wealth and wellbeing can draw on principles from te ao Māori.

Financial advisers can help people to invest in line with their values, not only excluding companies they are concerned about, but also to target areas they want to invest in that connect to positive outcomes, like electric cars or clean water. They develop an investment plan to meet the clients’ needs and aspirations for the future, and then work with clients to monitor performance and make adjustments in response to changes in clients’ needs or financial markets or investments. Typically, investors pay around 1% for financial advice. This may appear to be a lot, but studies show that the value added from a good adviser is high, and investors can often gain higher returns and/or lower risk and more positive impact than investing on their own.

A key attribute for a financial adviser is independence. An independent adviser is objective and able to advise clients on a range of products, not just those of their employer. Secondly, they need to be open and knowledgeable about ethical investment. Only a small number of investment advisers are specialists in ethical investment and Responsible Investment Association of Australasia (RIAA) Certified Advisors – Mindful Money’s website has a list of certified advisers (including Rodger) and members of the Responsible Investment Association of Australasia (RIAA).

Barry asked Rodger what an investor should look for when choosing an ethical fund. Rodger explained that they use detailed research reports to investigate new funds to bring into the New Zealand market. The analysis can be categorised using various factors, such as the following four factors:

- People: the skill and experience of the managers, and how committed are they to ethical issues

- Process: how are they implementing the philosophy of the fund and ethical mandate?

- Portfolio: what are they investing in and are they doing what they say they are doing?

- Performance: have they achieved their return, risk and real world impact objectives?

A key focus are the drivers of future performance including analysing the strengths and weaknesses of management and the analysis process they use, such as Environmental, Social and Governance (ESG) research, what they exclude, include and their engagement to improve company performance.

Rodger traced the evolution of the terms ‘ethical’ investment and ‘responsible’ investment. Much of the investment industry has shifted to using the term responsible investment, whereas the public recognises the term ethical investment. The international body, Principles for Responsible Investment, is encouraging the sector to move away from just looking at risk and return, to use a three factor framework – risk, return and real world impact. Barry noted that the term responsible is also often associated more with using ESG analysis to reduce financial risk rather than focusing on generating better real world impacts.

Rodger discussed the pros and cons of active management of investment (picking particular companies) versus passive investment (investing in all of the companies in an index). Each have their advantages and it depends on the preferences of clients. He noted that with passive investment a key is how the index is constructed including the extent of ethical criteria. High positive impact investments often have active management.

Rodger and Barry discussed the good returns that come from investing ethically. There is analysis from New Zealand and internationally, during the current crisis and over a long period, showing that returns are often higher from ethical investing than conventional investing and despite some perceptions are generally not worse.

Rodger concluded by saying that many members of the public know about ethical investing and want to invest ethically but few do so proactively. There are a growing number of good options available and ways to get advice and help, whether through investment advisers, Mindful Money, RIAA and people sharing information (including this seminar!). It is good to see the younger generation coming through with expectations that their money will be invested ethically. Rodger is optimistic for more ethical investing and better impacts resulting from investment.

The seminar concluded with a disclaimer noting that the contents of this interview do not constitute personalised financial advice. The interview is for information only and is not a recommendation to invest in any particular company or fund.

Rodger’s website: www.moneymatters.co.nz and Email: rodger@moneymatters.co.nz

With thanks to our principal sponsors - Generate KiwiSaver, Harbour Asset Management, Booster Asset Management, and Sustainalytics; contributing sponsors - AMP Capital, Harbour Asset Management, Mercer and Milford Asset Management; and supporting sponsor - Devon Funds Management.