FINANCIAL INDUSTRY NEWS
Principle or Profit - do you have to make a Choice?
As society as a whole becomes more environmentally aware as well as being more informed, this social responsibility is becoming more prominent in Financial Services. Bank accounts and mortgages can both be set up with so-called ‘ethical’ companies, but what about the choices for investing money. It is here that the impact can be higher, so is there a price to pay in terms of performance? Can a company be ‘green’ without being “in the red”?
Ethical investing has been with us for some time. The idea originated in the US and became very popular in the 1970s when the Vietnam War led to some investors questioning what their money was funding. Ethical investing formally arrived in the UK in 1983, when a firm called Friends Provident - a life insurance firm founded by Quakers - set up the first so-called 'ethical fund' in the UK, with the investment criteria determined by a separate committee.
This led to the launch of a range of Stewardship investments a year later, most of which are still running, having been rebranded under the F&C Investment banner. Since those halcyon days, a large number of firms have entered the market including major names like Henderson, Jupiter, Legal & General and Standard Life. Ethical investing is now big business.
The concept does make sense. Apart from the obvious social responsibility angle, companies that make a positive contribution to the world and its surroundings do tend to sit well with regulators and companies, thereby avoiding fines and boycotts of their products which, in turn, can have a bad effect on the share price. Environmentally aware firms should, therefore, have better long-term prospects.
Where it becomes more complicated is how we manage the term ‘ethical’. What is green for one person may not be for another. Let’s take an example: most people would agree that investing in a company that produces Arms and Weapons is not acceptable in an Ethical Portfolio. However, what about firms that trade with that company. They don’t make the guns, but they do supply the parts that make the guns. Are they acceptable in an Ethical Portfolio? Suddenly the water is muddied somewhat and we now feel a little uncomfortable with investing in that second company.
But, what happens if we look more closely at the parts company, and find that it has an excellent environmental and staff welfare record. Do they now become ‘green’ again? And is that ‘green’ enough? Ethical criteria such as this will always be open to interpretation and manipulation, which poses the question: “How ethical is ethical?”
This is why it is easier to invest through a managed portfolio, which will have a stated ethical policy, making your decision easier to manage. If you invest directly in shares, you will have to decide which ethical values are the most important to you.
We can see there is an increasing appetite for ethical propositions, which is why County have asked one of our investment partners, Brooks Macdonald, to come up with a suitable ethical proposition. This will be available shortly and we will also be discussing this topic in more detail at our Annual Seminar taking place at 2.00pm on the 29 November 2018. If you have not yet put the date in the diary, I would urge you to do so.
If you have any questions concerning any of these matters, please do not hesitate to contact us and we would be very happy to assist.
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Poor planning is an opportunity missed
A very interesting study, published recently by the Institute for Fiscal Studies (IFS), highlights an ongoing issue for many individuals, which is that retirees are holding onto their savings and are reluctant to spend money impulsively.
The survey, which can be read in full here, looked at how individuals use their wealth once they retire. What it found was that many are not drawing down as much wealth as they could. On average, individuals will draw down just 31% of net financial wealth between the age of 70 and 90. Even among individuals in the top half of financial wealth distribution, net financial wealth appears to be drawn down by just 39%, on average.
The IFS suggests this wealth, whether held in housing or in financial assets, is likely to be passed on to later generations. However, a key point noted was that inheritances will typically only be received at relatively older ages and so someone currently aged 40 might expect to receive a bequest from their parents at age 63.
There are further implications to consider concerning this situation. Without careful planning, some of this inheritance may be subject to tax. Just as importantly, had people had a clearer idea of their wealth in retirement, they may have been encouraged to spend more in retirement or simply to have given more away to future generations at a time when it would have benefited them more. For example, many grandchildren may appreciate some support with university fees or getting a start on the property ladder.
This is an interesting conundrum. There are only two things you can do with your assets in retirement. The first is to spend it and the second is to give it away (which you will do eventually). Whether you spend it or give it away, both are much more rewarding if you can be more informed as to how you wish to manage the process.
What the survey does highlight is that without some form of longer term plan, far too much of the wealth of those who are retired remains untouched throughout their lifetime. That’s why, at County Financial, we continue to support clients with our cashflow forecasting tool and why we try to offer ideas to help you plan. Our philosophy of “making sense of money” means our aim is always to highlight that with careful long term planning, you really can achieve what you want, when you want.
Should you have any questions relating to the above or our financial planning services, please do not hesitate to contact us at County Financial Ltd.
If you would like to print this article or download it to your computer as a PDF please click on the image here.