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Investing for a 21st century mindset

Investing for a 21st century mindset

Wealth managers need to examine how they run their companies and how they can invest for the greater good, if they want to future-proof their businesses.

‘We need businesses that are seeking to be regenerative and distributive by design,’ said Kate Raworth (pictured), author and economist. ‘[It’s necessary] if we are to transform the dynamics of the global economy and start to far more equitably distribute wealth and far more effectively work with and within the cycle of the living world, and bring ourselves back within planetary boundaries.’

Speaking at the Wealth Manager Retreat, Raworth, creator of the ‘Doughnut Economics’ idea, which emphasises sustainability, highlighted that the biggest challenge in the 21st century for humanity ‘is to meet the needs of all within the means of the planet’.

And for her, this can be achieved by changing the internal focus of companies and moving from what she deems a 20th century mindset to a 21st century one.

This applies to investors’ engagement with businesses they invest in as well. An example of improvement in this regard in wealth management is Charles Stanley and Brewin Dolphin.

Last year, the two national wealth managers were among a host of firms listed as tier three signatories in the Financial Reporting Council’s (FRC) Stewardship Code.

The code was launched in July 2010 to enhance engagement between investors and the companies they invest in. After being told to ‘significantly’ improve reporting standards, both companies revealed that they were undertaking reviews.

Now, both Brewin Dolphin and Charles Stanley have become tier 1 signatories, and the FRC has removed the tier 3 category.

Commenting on what investors should do if they discover negative practices in companies they invest in, Raworth said: ‘If you find child labour, slave labour in your supply chain do not withdraw. Work. If you’re not going to withdraw, show me how you’re going to engage. Show me what you’re doing to engage and convince me your level of engagement is going to be effective.

‘If not, that is not a credible strategy and you’re still implicated in benefiting from investments that are extracting from the earth, although theoretically you’re saying you’re staying to engage, but you’re not putting in the resource to make it effective.’

The DNA of companies

She said that as more and more businesses are built in order to benefit the society or the environment, this will create a tension. Companies with the 21st century mindset will build their businesses asking what they can contribute to the community and how many benefits they can actually layer into their structure.

However, when they need financing, they will find themselves asking for it from a community ‘still caught in a 20th century mindset’. This group asks one question: how much financial value can we extract from this?

‘And I see that tension playing out again and again when you talk to entrepreneurs and some very established corporate figures in the business world. What drives that difference?

‘It’s the DNA or the structure of the company, its purpose, its governance, how it’s networked, or how it’s financed.’

But what can wealth firms do to change their mindset?

Hawksmoor Investment Management’s CEO John Crowley is already considering these tensions and, following the example of his children, is targeting ‘ethically-minded investors’.

He explained: ‘My own children are typical of their generation in showing a passion and commitment to social justice and green issues way above that of the past. If they are anything to go by, once they become economically active they will expect as a matter of course to be offered services and products that reflect and promote their commitment by providers that do so too.

‘Hawksmoor recently launched an ethical version of our normal discretionary portfolio management service, which is already attracting clients, and which we hope offers a solution for ethically-minded investors who wish to make changes to the world through their investment choices.’

Elsewhere, Veronique Morel, head of client management and branch principal at Raymond James, said her firm does think about how to have an impact on society and the environment.

She highlights how the smallest things can make a difference and with this in mind, her team tries to make the office equipment they use last longer. Also, when a product comes to the end of its use for the team, they explore ways of recycling by gifting it to others.

She added: ‘In terms of our practice on the social side, the information and ideas we gather we might be able to share with people who are less fortunate. That way they can have access to important information and the knowledge we have acquired.’

This means that while her team conducts research for high net worth clients and comes up with investment ideas, they will share that information with others, who normally might not be able to afford access to it.

‘Or share it with women for instance,’ she said. ‘Women who have gone through situations in their life like divorce. We get knowledge from this woman and ask them if they want to help other women going through similar situations. In the community, we advise people in need, as well as charities.’

On the investments side, she says that the team is moving towards ESG now that there are more specific funds they can invest in.

‘I think in the future it might become an integral part of every single product. It’s a growing aspect of our process as well.’

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