Ethical and socially responsible investment funds. Are they ethically and responsibly marketed?
| Date | 10 May 2011 |
| DOI | https://doi.org/10.1108/13581981111123825 |
| Published date | 10 May 2011 |
| Pages | 100-110 |
| Author | Robert Watson |
| Subject Matter | Accounting & finance |
Ethical and socially responsible
investment funds
Are they ethically and responsibly marketed?
Robert Watson
Instituto de Empresa Business School, Madrid, Spain
Abstract
Purpose – The purpose of this paper is to evaluate the marketing of ethical and socially responsible
investment (ESRI) funds to retail investors and to analysis the plausibility of the claims made in
regard to their performance, achievements and prospects.
Design/methodology/approach – The paper presents an analysis of the claims and marketing
strategy adopted in the ESRI industry’s Action Guide for Financial Advisors document, produced for
their National Ethical Investing Week, 2010.
Findings – The analysis indicates that the ESRI fund industry’s Action Guide uses a number of
unethical marketing techniques to induce retail investors into investing in ESRI funds and that many of
the claims made on behalf of ESRI investing are implausible. Given the past history of mis-selling in the
investment fund sector, these findings ought to be of some concern to regulators and retail investors.
Originality/value – This is the first article that has linked the promotion and marketing of ESRI
funds to possible mis-selling practices.
Keywords Ethical investment,Selling, Investors
Paper type Viewpoint
Introduction
The generally poor (and arguably, well-deserved) reputation of the UK financial services
industry in regard to its dealings with non-professional, retail customers, has been
largely driven by the numerous mis-selling scandals that have come to light over the
past 20 or so years[1]. Mis-selling has typically involved large number of retail investors
suffering significant financial losses arising from being sold an unsuitable financial
product on the basis of misleading advertising claims and manipulative selling
techniques designed to exploit customer’s cognitive limitations and their lack of
knowledge of financial and investment matters; that is, mis-selling involves not
merely establishing that customers have lost out financially but also that they had been
unfairly pressured and/or misled into purchasing a financial product, such that it can
reasonably be inferred that the customer would not have entered into the contract if they
had been given a more truthful account of its risks, costs and other cond itions. The
variety of financial contracts implicated in past mis-selling episodes has been large, such
that few areas of retail financial services have escaped regulatory censure and financial
penalties for mis-selling[2].
An interesting aspect of mis-selling scandals, is that they have usually implicated a
large proportion of the firms in the relevant sector[3]. This contagion occurs because
the negative financial consequences of mis-selling typically only become apparent to
customers some considerable time after the contract has been signed. The impact on the
financial service provider’s performance (increased profits and market share) is,
however, both immediate and easily observed by competitors. Competitive pre ssures
The current issue and full text archive of this journal is available at
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JFRC
19,2
100
Journal of Financial Regulation and
Compliance
Vol. 19 No. 2, 2011
pp. 100-110
qEmerald Group Publishing Limited
1358-1988
DOI 10.1108/13581981111123825
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