Dealing with responsible investing segments

5 min read 9 Dec 20

In the last article I wrote about responsible investing the basic point I made was that effective fact finding and segmentation are intrinsically linked and form the foundation of the responsible investing element of your investment proposition. Obviously, since I wrote that, the FCA’s view on adopting MiFID II in the area and it becoming a mandatory fact find has changed. Ultimately though, I don’t think that really changes the fact that advisers need to embrace responsible investing. It’s become firmly part of mainstream investing and will eventually be the ‘new normal’. Advisers dealing effectively with client needs in this space will be the winners.

To build out your investment proposition it feels sensible to follow the same approach you will have taken to meeting your PROD obligations around researching, selecting and documenting. It’s also worth bearing in mind that as part of the legislation, advisers could be obliged to publish how they factor sustainability risks into their product research process. Having this documented is doubly important so that it can be shared with clients before you engage with them.

With the key segments identified, what does this mean in terms of actual investment solutions? As with any type of investment, the first decision to make is, do you manage it yourself or outsource to someone else to do it for you?

For those already outsourcing their investment proposition, there seems little reason to bring the responsible investing element back into the business. But, for those who manage investment in-house, it may not necessarily be such a linear decision. From a number of advisers I’ve spoken to who manage their own investments, there’s been an interest in outsourcing this part due to its specialist nature, particularly those who use ETFs which can be a little more challenging in this world.

Options across the responsible investing spectrum

Logically for the ‘some feelings’ segment I spoke about previously, you’re looking at off-the-shelf solutions across the responsible investment spectrum. In terms of what’s out there, you can’t fail to have noticed the ever expanding universe of single strategy and multi-assets funds catering for this.

From a DFM perspective, there’s the ability to access some truly specialist expertise and plenty of choice from MPS that focus on specific areas through to those investing right across the responsible investing spectrum rather than single strategy.

For those of you who favour passive or ETF based solutions, there are some really interesting solutions available and it’s certainly not the impossible challenge that some have said it is! 

The ‘strong feelings’ segment is where things can get really interesting. Given the inherently personal nature of people’s beliefs and values, this is really about dealing with a potentially infinite number of ‘segments of one’. It could be those wanting their money focussed or excluded from specific values, sectors or individual companies or a combination of all of these. It’s entirely possible here that the desired outcome is not achievable with collective investments and the client may need exposure to direct equity or bond holdings.

Delivering responsible investing in-house

If you’re managing your own investment proposition, then having access to appropriate research services that will allow you to get into the detail of funds or other securities is vital in reflecting your client’s requirements. If they’ve said they don’t want to invest in a particular company then you need some means of getting that information and monitoring it going forward. It’s also worth making sure your fact find and research tools align. There’s little point in asking for a client’s view of something if your research tool doesn’t allow you to filter by it.

Outsourcing your solutions

For those outsourcing, in some senses it’s much easier to manage this situation – in blunt terms, you determine what the mandate is with the client and it’s the DFM’s job to manage to it. There are a number of specialist DFMs operating in this space with the expertise and experience to deliver the most intricate solutions, including direct equity and bond exposure. One I know of has a very detailed fact find document that really helps advisers drive out the specifics of where the client’s preferences are. As with all bespoke solutions, the cost will be little higher, to reflect the personalised nature of the solution. But, I always take the view that if the service delivers additional value to the client then it justifies itself – unlike ‘normal’ portfolios, this also effectively puts a value on a client’s principles and values.

Platform support for responsible investment

From our perspective as a platform, our role doesn’t really change here – it’s still about enabling propositions. By that I mean it allows you to access the products and services you need to deliver your solutions to clients. From a responsible investing perspective, we’re really well placed to support you:

  • There’s an ever increasing range of funds, ETFs and other instruments available, including direct equities and bonds
  • An extensive range of DFMs offering a wide range of different Model Portfolio Services options across the full spectrum
  • The option to have specialist DFMs run bespoke client portfolios for more complex scenarios
  • ‘Split’ wrappers allow you to run multiple strategies for your client needs or if you just want to make an allocation to certain areas.

If you’d like to discuss any of this article in more details please feel free to email me on

I look forward to hearing from you.