HM Treasury and the Financial Conduct Authority (FCA) have published details on the sustainability disclosure requirements the financial services industry will need to abide by within the next couple of years.
While the document details all the steps that need to be taken for corporate and investment product disclosure, as well as by asset managers and asset owners, there is little action that is being asked of financial advisers specifically.
This, however, does not mean they will not be part of the wider push for a “greener financial system”.
“HM Treasury and the FCA are exploring how best to introduce sustainability-related requirements for financial advisers,” they said in their ‘Greening Finance’ roadmap. “A key aim will be to ensure that they take sustainability matters into account in their investment advice and understand investors’ sustainability preferences to ensure suitability of advice.
“Details of the proposals are subject to further consideration and will be set out on a different timescale to proposals for financial market participants. The proposals will be subject to consultation and cost benefit analysis.”
Jamie Jenkins, director of policy and external affairs at Royal London, told International Adviser: “Advisers are a key enabler in the sustainable investment landscape, and many have already embedded this in their advice process. Any rules should provide a helpful framework for those firms which have still to do so, but include flexibility to allow all advisers to do their job effectively.”
Give advisers ‘freedom’
But, while you can lead a horse to water you cannot make it drink.
Matthew Connell, policy and public affairs director for the Personal Finance Society (PFS), believes that while the introduction of such requirements has been expected for a while, the rules should not pose limitations to what kind of conversations advisers will be able to have with their clients.
He told IA: “We have anticipated the requirements set out in the paper for some time. Under current FCA regulations, advisers are required to gain competence in environmental, social and governance (ESG) issues through the FCA’s Training and Competence Handbook.
“The FCA has also stated that, under current rules, ‘clients’ objectives will be individual and should be explored and considered by advisers, regardless of whether they are financial or non-financial goals’, [in a letter from Andrew Bailey in January 2018].
“The big difference with these new requirements is that advisers will have to consider sustainability issues, whether or not clients have initiated this conversation. This requirement can lead to productive conversations between advisers and clients, and many advisers already have these conversations and consider it a positive part of their client proposition.
“However, it is important that advisers should be given freedom to structure conversations in a way that is appropriate for their clients and relevant to the ever-evolving set of products that are available to them. An overly-prescriptive approach may be counterproductive if it limits the ability of advisers to have a natural and meaningful conversation with their clients, and instead prescribes a more robotic approach.
“We welcome the approach taken by HM Treasury and the FCA to set out a timetable that allows for proper consultation on these measures,” he added.
If a client has no interest in sustainability, would they be required to sign a document confirming this?
Essentially, turning the requirement into a tick box exercise…
