Top Secrets of the Ethical Uber-Rich

Top secrets of the ethical uber-rich

By Rebecca O’Connor, editor of Good With Money

One great thing about being wealthy is having the luxury of choice. With investments, this means the ability to choose what you want to invest in. Although investment is opening up to the masses with platforms that make funds a mass market proposition, the most tailored portfolios are still reserved for clients with £50,000 plus to invest.

So if you happen to be fabulously wealthy and ethically-minded, you are in the fortunate position of being able to pay people to put your money into the best-performing investments that match your values.

A growing number of “family offices”: investment companies set up and run to manage the wealth of individual families, are being asked to invest according to “environmental social governance” (ESG) criteria on behalf of the families, for whom preserving consciences is as important as profitability.

The result is that the companies that receive investment from such powerful family offices up their game on the governance front to attract more of the morally-discerning money – a virtuous circle.

So how do the ethical uber-rich marry their principles with their profits? Here are a few secrets:

Get someone else to do it for you

You’ve no need to manage your own investments, unless you really want to. Even for the less high net worth among us, there are dozens of new digital wealth management platforms around these days: Moneyfarm, which will manage your first £10,000 free of charge, Nutmeg, Flying Colours and EQ Investors, to name a few. EQ is the only one of these to offer a positive impact portfolio, which is worth checking out. They usually allocate your money across different asset classes to manage your risk, according to your age and risk tolerance, which brings us onto the second rule…

Do not be afraid of risk

If you’ve got pots of money, you can afford to take some risks. It’s easier said than done when you haven’t got pots and you are investing your hard-earned life savings, but it’s worth bearing in mind that the riskier stock market has outperformed cash decade after decade. Over the last 10 years, the average annual growth of the FTSE All Share was 5.4 per cent. For cash savings, that figure is 1.9 per cent. Now that interest rates are super low and quantitative easing is in circulation, pushing up asset prices, that differential is widening – there is now almost no point saving at all. Take as much risk as you are comfortable with and the chances are, you will be rewarded for doing so (but that doesn’t mean gamble everything on an eco property development in Brazil – we are talking risk, within reason).

Invest for the long term

Like an heirloom, a perfect dress or a painting you love, treat your money well, with care and respect, over the long term and it will reward you by thriving for longer. Ethical hedonists don’t throw away fashion – and they shouldn’t throw away money on deals that seemed good value at first but then did not continue to deliver.

Sustainable investors tend not only to invest in things like renewable energy and zero carbon property, they also tend to invest in businesses that demonstrate long-term good decision-making, not short-term profit seeking. Triodos Sustainable Pioneer Funds are designed with this in mind. They come with higher up front charges than some other peers, but their conscience-appeasing appeal is peerless.

Be fussy

The Wedding Feast at The Duck and Waffle

Don’t be blind when it comes to what your cash is funding. Become a connoisseur of investment options. Treat funds like fine wines and only let the very best, which score highly on all fronts, have your money. Don’t settle for second best – you don’t need to. Here are four funds that score well for returns and sustainability. There are two sites that can help you explore the themes behind funds further: 3D Investing gives star ratings that reflect a fund’s financial and ethical performance, Fund EcoMarket , run by responsible investment supremo Julia Dreblow, allows you to search for funds according to theme.

Cheap is as cheap does

There is a huge trend in investment right now to chase low cost, passive index tracker funds, run by the likes of Vanguard and Blackrock. Evidence shows that over the long term, such funds perform as well for returns as “actively” managed funds, where the managers engage closely with the companies in which they are shareholders and chop and change frequently. This trend is not good news for ethical investors, who really want their fund managers representing their concerns on things like labour rights (Sports Direct), tax (Google) and climate change (BP, Shell, etc) heard.

Ethical investors want a fund manager who is going to withdraw funds from a company that is not doing its bit for people and planet, and that means an active one.

The good news is that not all funds that are run with an “ESG” mandate are super expensive – you can find a balance between fees and the level of engagement of the fund managers. Around 1 per cent is reasonable – 0.2 per cent is probably doing nothing at all, while a fund manager might struggle to justify 1.8 per cent, even if they are super ethical.