Saturday 24th September 2016                 Change text size:

Financial advisers reluctant to recommend social investment



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Financial advisers are reluctant to advise and recommend on social investments because of the perceived risks and uncertainty around how regulation affects obligations to clients, according to a report.

The report – Marketing Social Investments – An Outline of the UK Financial Promotion Regime – explains that financial advisers are required by the Financial Conduct Authority (FCA) to provide investment advice that takes into account a client’s financial position and objectives. This requirement aims to ensure that clients receive advice that is suited to their needs and in their best interests.

The report states, “Partly for this reason, financial advisers therefore tend to recommend mostly liquid and therefore listed investments, thereby excluding investment into social enterprises which tend to be largely to be unlisted.

“Financial advisers also tend to be reluctant to recommend social investment due to the lack of a track record in the market, which means they are seen as riskier than commercial investments.”

The reluctance to advise clients to invest in social investments could be linked to uncertainty among advisers regarding the application of their obligation to clients, according to the report.

As a result, many advisers are unlikely to recommend a social investment over a more mainstream commercial investment unless a client specifically expresses an interest because of the perceived higher risks and lower returns.

The report also warns that the Financial Promotion Regime, which regulates the marketing of small-scale investments, risks “stifling” growth in social investment because of the barriers it creates. It argues that regulation contributes to making it more difficult to communicate opportunities in the market to retail investors.

Photo: Dave Dugdale via Flickr  

Further reading:

UK has ‘most advanced’ social investment market, says government

Social investment risks being ‘stifled’ by regulation

Government sets out social enterprise support in Social Investment Roadmap

Concerns raised over social investment tax relief

Sir Ronald Cohen: measuring of social investment outcomes a ‘breakthrough’


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