Advisers have an obligation to ask about values: RIAA

Speaking on a recent episode of the ifa Show, co-chief executive of the Responsible Investment Association Australasia (RIAA), Estelle Parker, said advisers have an obligation under the Code of Ethics to ask clients about their values to ensure their investments align.

Since the commencement of the code in 2020, Parker said the industry has been criticised for its lack of attention to clients’ ESG values when considering their investments, despite areas of the code compelling them to do so.

“The Code of Ethics can include, under the 12 standards, a number of areas that actually indicate or oblige financial advisers under that code of ethics to discuss their clients’ values with them,” she said.

“I think it’s pretty clear now that the sector actually needs to take this seriously.”

Looking at standard five of the code, Parker said enquiring about a client’s ESG values, as well as other considerations, is necessary to ensure their investments are in their best interest.

“So if you look at, for example, under the category of ethical behaviour, which stipulates that the financial advisers must act in the best interests of their clients,” she said.

“The category of client care actually clearly states that financial advisers must provide all advice that is appropriate to the individual circumstances and that clients must understand the benefits and the risks of their investment.

“So, to take into account what‘s described as the broader, long-term interests of clients, in order to consider their long-term interests, financial advisers actually have an obligation to ask clients about their values and to discuss those values with them.”

Client concerns about firms ‘greenwashing’ investment products

As consumers come to demand more access to responsible investment products they can trust, third-party certification has become increasingly important in ensuring investment products are in line with client values.

With some funds coming under fire from industry regulators recently for “greenwashing”, Parker said investors are looking for assurances that products aren’t making false claims to ethical practices.

“The regulators are cracking down on this practice; the overstating the environmental or the social benefits of investments,” she said.

“They are concerned as they hear about this and with more funds in the market that are branded as ethical or sustainable, it’s really important now to get that third-party verification that those funds are what they say they are on the label.

“Our certification program is that third-party verification.”

To make sure products are correctly labelled, RIAA’s Responsible Investment Certification Program assesses products, allowing investors to make informed decisions and ensure their investments meet their personal ESG values.

Some of the aspects it investigates include the process for decision making about inclusions in the portfolio, looking at the product labels, stewardship practices, and efforts made to improve company practices for those they invest in.

“We really make sure that those labels are clear and very honest and not misleading and that they correctly reflect what’s in the product. We have around 350 products that we have certified and we certify those under a responsible investment standard,” Parker added.

To hear more from Estelle Parker, tune in here.