Allia welcomes FSA statement

In its final newsletter for financial advisors on the Retail Distribution Review (RDR), the FSA defined social investments as having “an objective of providing, in part or in full, a wider social benefit rather than a pure financial benefit for investors.” This in itself is a significant statement, acknowledging that social investments can be distinguished from purely financial investments and, by implication, that they can therefore be treated differently.

More importantly, the newsletter goes on to say “we accept that, perhaps for part of a portfolio, making a financial return may need not be a client’s only or primary objective.” In other words, advisors are not restricted to recommending products that offer the best possible financial return. They can legitimately recommend products that meet a client’s objectives to create a social impact, even if those products offer lower returns or have higher risks than mainstream alternatives, as long as the product is suitable and the client understands any disadvantages.

From our interactions with advisors on the Future for Children Bond we perceive there is a considerable degree of uncertainty and nervousness about the regulatory implications of advising on social investments, but this statement is a step in the right direction and we look forward to hearing what David Geale, head of investments policy at the FSA, has to say at next week’s inaugural Social Investment Academy seminar.