It's not that there's any shortage of advisers (IFAs) who'll say they are prepared to advise on ethical investment matters. According to Lee Coates, of the Ethical Investors Group: "Everyone wants to get on the bandwagon, which is galling for those of us who have been doing it longest, out of a belief in what is right."
Part of the problem lies with the rapid growth of the ethical sector, its funds attracting new money at a far higher rate than non-ethical alternatives. The value of ethical funds under management has gone from pounds 700m in 1994 to more than pounds 2bn today, with almost 150,000 investors. This figure is expected to double by the year 2000.
In an industry where IFAs are usually rewarded by commission, this makes advising on ethical products a lucrative proposition.
Nowadays, most advisers recommending retail financial products - typically PEPs and unit trusts, rather than company shares - are regulated by the Personal Investment Authority. But while PIA rules oblige advisers to "know their client's circum- stances" when giving advice, this is not taken to include asking questions about their ethical concerns.
The consequence is that while a very large majority of IFAs say they are prepared to give "ethical advice", there is no obligation for them to introduce the subject, or to deal with it in a standardised procedure. "Most will offer ethical funds only if asked, and then know little about how these actually work," warns Mr Coates.
Research carried out by Friends Provident confirms that consumers want an ethical dimension to their investment choice: 73 per cent would like to see their pension funds run on ethical lines if possible; 51 per cent are worried that they do not know where their money is invested - but that only 16 per cent had heard of the ethical investment option.
"Closing this gap between the aspiration to make ethical investment and knowledge of what is available in the market place would be made far easier if IFAs were obliged to ask about ethical issues as part of their standard fact find," argues Jim Murdoch of Friends Provident.
The UK Social Investment Forum (UKSIF), with corporate members including Friends Provident, NPI and the Co-operative Bank, is campaigning not just for a change of rules to ensure that ethical questions are included in all IFA "fact finds", but also for a means of defining good practice among those offering ethical advice.
UKSIF's executive director, Penny Shepherd, says: "We don't want to be prescriptive, or frighten advisers off, but think it's time to consider some kind of self-certification, which would demonstrate to those seeking ethical advice that they are dealing with an IFA qualified to give it."
Meanwhile, the Ethical Investment Research Service (Eiris) compiles an annual directory of IFAs who offer advice on ethical investment. This lists just 67 firms out of some 3,500 UK firms with 22,000 individuals registered to give advice. Firms are included if they put more than pounds 100,000 into ethical funds, or if these amount to more than 40 per cent of their annual business, or if they bought the Eiris guide Money & Ethics in 1997.
But Keith Jenkyns, a director of Ethical Financial, doubts that these are sufficient grounds to assume a listed firm gives best ethical advice.
He says: "The best ethical IFAs have common features. First, a good ethical IFA will check up on fund managers running ethical funds, by asking for a list of shares held in the fund. This can often show up a gap between practice and principle."
Lee Coates agrees: "NPI has bought shares in NatWest Bank, who have helped fund Third World debt, and Manchester United Football Club - aren't they the club which keeps issuing new strips and ripping off supporters? I will be writing to NPI and asking them to drop this share."
Second, says Mr Jenkyns: "Ethical investors come in all shapes and sizes, so getting a clear idea about which investment areas they wish to avoid and which they wish to support is vital, particularly as this may leave only a very limited range of investments acceptable to the client."
Most genuinely "ethical" IFAs will ask you to complete a questionnaire which should list negative investment criteria - areas you want to avoid - and positive criteria - areas you want to support. Typical negative criteria include alcohol, tobacco and arms manufacture, while positive criteria include environmental policy, and employment practices.
Next, says Geoffrey Griffiths, of Barchester Green Investment, a good ethical IFA should be "able to clearly explain the risks inherent in this sector. Most of these funds hold high ratios of smaller company shares, and need time to give performance".
He says: "Older investors, particularly those seeking to supplement pension income by investing a lump sum, should be made aware by advisers that sometimes there are good reasons for compromising on matters of principle. For instance, there are no `ethical' with-profits funds, and ethical high- income funds tend to underperform against non-ethical alternatives."
Finally, Lee Coates argues: "Ethical IFAs should be investing at least 40 to 50 per cent of their business into ethical funds, and should also be able to tell you which non-ethical funds they refuse to recommend. Some of these are clearly worse than others; an adviser worth his salt should research this."
Details of the IFAs mentioned in this article are given in the Eiris list of IFAs who offer advice on ethical investment. Ring 0171-735 1351 for a free copy. UK Social Investment Forum, 0171-377 5907.
The `Independent' has produced a free 28-page `Guide to Ethical Finances' by Nic Cicutti, the paper's personal finance editor. The guide, sponsored by Friends Provident, has information on all aspects of money and ethics. Call 0800 214487 for a copy or fill in the coupon on page 4.Reuse content