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Katy Owen explains how Thomas and Thomas seriously increased their ethical offering

Katy was recently asked to put the following article together for the industry press:

My introduction into ‘Ethical Investing’ began three years ago when I started working for Thomas and Thomas Financial Services. I have always considered myself passionate about environmental and ethical issues so I was very pleased to learn that my new employer was equally as enthusiastic on the subject.

Darren had been constructing bespoke ethical portfolios for almost a decade to suit the needs of his few bespoke ethical investment clients. He shows a real passion for ‘filtering’ the underlying funds and meeting his clients’ requirements. Thomas and Thomas already had in place their own ethical investment questionnaire, ethical branding and investment process but we could see that there was greater potential to expand this area of our business.

Thomas and Thomas offer a range of mainstream portfolio offerings with a risk level of 1-5. The service we provide for these portfolios varies according to our clients’ request but many of our mainstream clients benefit from our well regarded ‘Proactive’ system where we actively monitor a clients’ portfolio and contact them once every quarter regardless of whether a fund change is needed.

Our ethical portfolio service has always been more restricted because of the underlying volatility and fund range. Therefore, we offer ethical clients a choice of three risk rated portfolios from 2-4. In the past we could not realistically see a way to roll out our ‘Proactive’ quarterly review service to these clients because of the disproportionate man hours required relative to the amount of investors. Furthermore, we were under the impression that every ethical client would have a very individual portfolio.

Inevitably, while reviewing the performance of our mainstream propositions, we began comparing them to their ethical model counterparts. The results were somewhat surprising as the performance gap began to narrow between the two offerings. This was unexpected because the objectives for our ethical investors was firstly to satisfy the ethical criteria and secondly performance. We looked more closely at our ethical clients’ demands and came to recognise that they mostly had common ‘negative screens’ and ‘positive screens’ that could be entered into a consolidated model.

We noticed that there is an increasing amount of press coverage for ethical investing lately, and that more ethical funds are entering the mainstream arena. Darren had been talking for years of a ‘Proactive Ethical’ or ‘Pro-Ethical’ proposition. This was a big task to undertake because every quarter we would be giving ourselves an additional three model portfolios to fully back-test and analyse. We would also need to make contact with all the additional ethical investment clients.

There was risk to our business in undertaking the Pro-Ethical service. We couldn’t be sure if our existing ethical clients would all join our new proposition. We could end up doing a lot of work for a handful of investors.

In January of this year we took the plunge after contacting most of our existing ethical clients for their view on the matter. Their response was fantastic and all of the clients wanted the service. In fact, a number of clients said they would invest more money if they could achieve the more comprehensive service.

Darren moved the businesses own investments to our Pro-Ethical portfolios and agreed that we would carry out all moves to our new Pro-Ethical service at no initial cost to the client. We needed to undertake each client matter individually with full reports, file notes and illustrations and this even involved moving clients across platforms in some cases.

Over the following months of hard work, we gathered more momentum. We launched our ‘Thomas and Thomas Ethical’ web page, complete with ‘ethical news’ that we wrote ourselves and even our first ‘ethical video’ to explain how screening works.

We also kept our mainstream clients in the loop about this new service via our regular Thomas and Thomas articles and annual reviews. To our surprise, many mainstream investors (who have not previously expressed any interest in ethical investing) promptly asked to move their assets across to the Pro-Ethical range as well.

There are varying reasons for investors moving to our ‘Pro-Ethical’ service. These include a response to the Trump denial about global warming, the vast amount of plastic in the ocean, corporate greed and unfairness or just good old fashioned diversification.

In total we have moved nearly £7 million of our client assets across to this proposition since January (over a sixth of our total client bank) and the pattern seems to show no sign of reversing.

Since the creation of the Pro-Ethical, we have carried out three quarterly reviews where we find ourselves cheering in the office at their performance.

We are passionate about all of our portfolios at Thomas and Thomas, however, seeing this kind of performance from the ethical portfolios is comparable to seeing your wild haired child win a race against Usain Bolt!

Best wishes



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