The financial adviser’s role – responsible investing

Is it the financial adviser’s role to probe their client on whether they are interested in responsible investing? Financial Advisers Standards Education Association (FASEA) Code of Ethics (the Code) may think so.

Consumer interest in responsible investing has been increasing exponentially over recent years with reporting revealing that as many as nine out of 10 consumers would prefer to invest in products with ethical credentials and that investments in ethical products account for up to a third of all of Australia’s investments. 

Notably, these are not “niche” figures, with this trajectory expected to continue. Consumer interest in responsible investing is substantial and should trigger financial advisers to think deeply about what this growth means within the advice process and how they can best service their client interests and continue to provide financial advice that meets their legal obligations.

One of a financial adviser’s primary legal obligations is to identify the objectives, financial situation and needs of a client and to act in their client’s best interests in relation to the advice provided. There is a further ethical consideration found in the Code, particularly Standard 6.


Standard 6 requires an adviser to take into consideration the broad effects of a client acting on the advice provided and actively consider the client’s broader, long-term interests and likely circumstances.

The related explanatory memorandum goes further and states that a financial adviser needs to consider whether limiting the recommended products to “responsible” or “ethical” products is appropriate. This can be at the request of the client, although “responsible” products may also be considered in light of the possibility that their high ethical value may make them a more appropriate long-term investment.

The Code highlights the growing emphasis on a financial adviser’s need to explore and interrogate clients’ investment preferences, particularly in relation to responsible investment considerations. A prudent adviser should be well versed in the suitable investment options available, whether they have been requested by their client to consider or not, as well as how to adequately advise your clients on these matters.

When considering the above obligations, there are potential tensions that may arise between what a client states are their objectives (i.e. investments must be responsible) and what their financial needs or longer-term requirements might be.

For example, if the financial return on a “responsible product is likely to be less than the return achievable on a product with a less ethical footprint, is the advice to invest in it still appropriate and in the best interests of the client? For further consideration is where a product with low ethical value, but a high return, may be unsustainable longer-term. Understanding your client’s longer-term goals is therefore important with the length of investment becomes a key consideration of the advice.

Our view is that a prudent approach to these complexities is for advisers to review their fact-finding processes to ensure that the information they seek from their client teases out the necessary information they need to create a holistic picture of your client’s objectives and needs, as well as broader requirements.

When providing advice that considers responsible investing it is crucial that not only is the adviser well educated in this area, but that they are also providing an appropriate level of education to their clients to arm them with enough information to make informed decisions. This could include an overview on the benefits and risks of responsible investing as well as direct comparisons between alternative products – including the products held, the products considered, and the products ultimately recommended.

The FPA’s Understanding the FASEA Code of Ethics has some helpful guidance that outlines their suggested approach to complying with Standard 6 that includes “research and consider ethical or responsible investment available that meet your client’s desired specifications (for example risk level, cost, returns, features, benefits, and disadvantages).”

Responsible investing is growing both as a movement and a key consideration in the advice process. Financial advisers need to be well versed in a wide variety of investment options and research the financial products available to meet clients’ requests for responsible investments that will meet their financial goals and needs.

More broadly, financial advisers should consider whether a “responsible” investment may be an appropriate investment for a client whether it is directly requested or not.

Emma Johnson, lawyer, Cowell Clarke

The financial adviser’s role – responsible investing
Emma Johnson
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Neil Griffiths

Neil Griffiths

Neil is the Deputy Editor of the wealth titles, including ifa and InvestorDaily.

Neil is also the host of the ifa show podcast.

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