Making ethical money work

Two years ago Cambridge-based advisers Moneyworks committed to ethical investing but the first inkling that clients might want this type of offering actually appeared in the nineties.

Tuesday, January 17th 2023, 6:20AM 1 Comment

by Andrea Malcolm

Founder and managing director Carey Church says, after setting up the firm in 1997, her first client who wasn’t a friend or family member asked for advice on how to invest money ethically.

She couldn’t give them any due to a dearth of products.

Over time a handful of similar queries kept her on the lookout but there were only two or three investment trusts which were vaguely sustainable with terrible performance. With the launch of KiwiSaver in 2007 about two dozen clients asked about ethical products but it wasn’t until 2018 that Moneyworks saw a dramatic upswing in client interest about ethical investing in general.

Between 2018 and 2020, 90 to 95% of the firm’s new clients were stipulating ethical requirements.

“We began analysing our fund managers and let them know we needed an ethical overlay. We know now that that was very embryonic and shallow. In 2020 we made a major commitment.”

That was the year Moneyworks’ three advisers joined the RIAA (Responsible Investing Association of Australasia). They attended conferences and webinars, and read up extensively on the ethical investing environment, frameworks and infrastructure. All three also did the online UNPRI certification course, now the UNPRI Applied Responsible Investment Certificate.

“It’s not easy. It’s a really hard multi-choice exam; you have to get 80% right and you only get two chances to pass it.”

Despite all this, Church was unsure of claiming to be an ethical investment adviser. Then Moneyworks discovered Mindful Money, a non-profit responsible investment information provider.

“We talked to them and purchased their research. Until then I was nervous about saying we were ethical advisers because we weren’t sure about our fund managers. Having Mindful Money research enabled us to do that. It showed exposure to what I would call the nasties.”

Based on Mindful Money and inhouse research, plus ongoing conversations with fund managers, Moneyworks created an in analysis programme and at the beginning of last year rolled out a client report to show exposures to sin stocks. The term ethical investing is now part of the Moneyworks brand.

Fund Managers Dropped

“We also now have a lot of interaction with the fund managers to understand what they’re doing, why they’re doing it, what they do with their votes. Last year we all spent time with our fund managers, honing what our portfolios look like. Moneyworks interacts with fund managers a minimum of three items a year, although not always in person. This has really deepened our relationships with them. We are continually questioning and the quality of their responses has a big impact on our recommendations.”

Church says she has seen a change in the level of fund managers’ preparedness to engage although not all responses have been satisfactory and she has stopped recommending some.

“They have the words on their website and in their policies but when you look at their holdings there’s a total disconnect. We have spent hundreds of hours analysing this and will continue to do so every year. It’s totally different to just talking about what the markets are doing.”

The second stage of Moneyworks commitment to becoming ethical investing advisers was to become a B Corp or Benefit Corp business.

“This shows we do a lot more in our business than just making money for shareholders. We have made a legal and public commitment to look after clients, staff, the environment and to contribute to the community. We’ve always done it but it was a matter of making sure it is documented.”

Although you would think the extra time spent on research by fund managers and advisers would increase costs, Church says client costs have reduced by more than 20%.

“It has significantly reduced our clients' costs. We’ve used tech and built a lot of analysis tools to look at new offerings as they come out, also scale.”

Last year Moneyworks rolled out ethical investing to all its clients and Church says when clients are reassured that they aren’t losing performance their passion comes out.

“We had overwhelming interest and I’ve never had so many thanks in the 25 years we’ve been in business. Less than 5% of clients were not interested. Ethical investment, particularly, is about valued relationships. It’s fascinating, you get to know your clients much better, you’re doing good for the world and you’re not going to lose performance.”

Now Moneyworks’ three financial advisers have become RIAA certified, making up one third of New Zealand’s RIAA certified advisers.

“The RIAA gives you tools to start off easily.I think it would be really hard to learn about ethical investing if you weren’t part of RIAA. It’s key for us. There are different working groups and we need far more advisers in this space. The first step is signing up for a RIAA masterclass on methodology. That puts your toe in the water. Then come to a conference.The more people that do this, the better for the world.”

Tags: responsible investing