Advisers should brace for changes in the way they operate, advise and recommend funds as the industry moves towards more responsible investing, delegates heard. 

Speaking at the Sustainable Investment Festival today, 11 July, Steve Kenny, chief distribution officer at Square Mile said that the industry was headed towards responsible capitalism, possibly leading to the "most fundamental change to the adviser and asset management world since RDR [Retail Distribution Review]."

He highlighted the ways in which this change was already underway, with one in seven clients asking about sustainable funds even without regulatory impetus, according to advisers surveyed by Square Mile.

In just three years, 40% of surveyed advisers felt that responsible investing would comprise about 50% of their business, according to Kenny, who added that these funds were the fastest growing area of funds in 2021, accounting for roughly 4% of the assets under management (AUM) in the investment association industry.

"When we talk to asset managers, a majority of them have said that the biggest growth area in their product development is launching sustainable and impact funds," he said.

Adding: "So you're going to have an increasing presence of these funds in the market. At the moment there's roughly about 350 out of 3500 funds regulated in the UK, so about 10%. I think without a doubt that will double over the next 12 months."

Kenny pointed to the change that the impending Consumer Duty regulations would bring about in the space. "It will have a necessity to use advisers to provide evidence of the good processes you employ in delivering desired outcomes for the consumers," he said. "Those regulations are far-reaching."

The surveyed advisers were most concerned about how to safely integrate this area into their centralised investment proposition (CIP), said Kenny, because "sustainable investing can very personal, and very personal means very bespoke, and bespoke means destroying your CIP".

Offering guidance on CIP restructuring, Kenny highlighted the importance of training and understanding the clients' preferences before going through the risk assessment.  

"It's important to understand the client's preferences, then do the risk assessment then make the recommendation. It's trying to frame how you deal with your clients in this space, so it doesn't necessarily end up destroying your CIP," he said.

In the end, Kenny wanted to emphasise that the path to responsible investing was about "progress not perfection".

"The key thing is that we're on a journey, nobody is there yet," he told delegates.