Rather than tell you how I feel about the Financial Conduct Authority’s proposed changes to certain pension and savings accounts, I thought I better ask the experienced ex-banker Rob Marstrand about the whole thing.

The Telegraph has their own take on this story, because you wouldn’t believe me if I just summed it up for you…

DIY pension savers can’t be trusted to invest their money, City watchdog says

The Financial Conduct Authority wants stockbrokers to put investors into “ethical” funds

Pension savers could be forced into single funds that only buy “ethical” investments under drastic changes that will see brokers pick where their customers invest.

The City watchdog said savers should not always be trusted to choose their own investments and proposed pension firms shoehorn them into one-size-fits-all portfolios. Billions of pounds should be funnelled into green and ethical investments, the Financial Conduct Authority said.

The article’s URL made me giggle given it highlights how the above was edited to remove the word “woke”: “pension-savers-shoe-horned-woke-funds”.

As the saying goes, “go woke, go broke”.

Anyway, on to the Q&A with Rob Marstrand, who is likely to keep a cooler head than mine about the whole thing. (You’ll have to forgive the slightly sarcastic questions I asked him…)

Nick: Are investors too stupid and too unethical to invest their own money?

Rob: I suspect that certain people would tend to that view. After all, when the majority of British voters chose to leave the European Union, it wasn’t long before they were all labelled “stupid” or “racist” by swathes of the political and media establishment. Why would such people trust us to take care of our own money?

In any case, if you really believe that more than half of British adults have such characteristics, then there are bigger things than investment strategies to worry about.

In terms of whether most people are capable of investing their own money, I think it’s clear that they can be. Of course, it takes a bit of effort to understand how it works. But you don’t need to be a genius to be successful.

As Warren Buffett, a legendary American investor, once said: “Success in investing doesn’t correlate with IQ… what you need is the temperament to control the urges that get other people into trouble in investing.”

I agree with that. You need to stay calm, be patient, and take a long-term view. In terms of the “urges” he referred to, he most likely meant throwing money at speculative bubbles (buying near the top) or selling investments just because a price has dropped sharply (selling at the bottom).

Our collective mission at Fortune & Freedom and UK Independent Wealth is to help people to make their own investment decisions, or even merely to ask the right questions.

The financial industry is effectively incentivised to make a lot of things seem more complex than they need to be. This helps to justify the fees they charge.

Whereas our aim is to explain things in simple language that anyone can understand. It’s a shame that’s not more common.

N: Are government regulators and fund managers more capable and more ethical with other people’s money than individual investors are with their own?

R: When it comes to financial regulators, their job is to ensure fair functioning of markets, to make sure small investors are aware of and can avoid scams, and to regulate financial firms, by ensuring that they’re sound and complying with regulations. After taking account of those parameters, it shouldn’t be any regulator’s job to decide what investments people choose to own.

Turning to fund managers, of course there are a great many competent ones. For investors that don’t have the time or confidence to choose individual shares, it makes sense to invest in funds.

That said, all individual investors should still take time to choose the allocations to different asset classes – such as stocks, bonds, precious metals, cash deposits and so forth. If you just farm it all out to someone else, without taking time to really think about it, don’t be surprised if it doesn’t work out.

It’s your hard-earned money, so why would you just let someone you barely know make all the decisions for you? It’s like handing over your newborn child to the nearest workhouse, and assuming that it will be well cared for until adulthood.

As for the ethical side, everyone has their own opinions about what’s ethical or not, and where the boundaries lie.

I send my kids to school to learn about maths, language, science and so on. But I don’t want the teachers imposing their personal ethical preferences on my kids.

Similarly, I wouldn’t want anyone telling me which of my investments are acceptable in ethical terms. That’s my decision, and mine alone.

N: Do you think Nigel Farage, Rob Marstrand, Nick Hubble and Neil Woodford have the same definition of an “ethical investment”?

R: Certainly not. Everyone has their own opinions on ethical matters. That said, between Nigel, you and myself, we tend to see eye to eye on most things. To the extent that we disagree from time to time, that’s healthy in any case. After all, it’s only by hearing a different opinion that you can truly test whether your own stands up to scrutiny.

N: When we first met and discussed what sort of topics we’d cover together, I believe you told me that there are certain companies you refuse to invest in. What are they, why do you exclude them, and do you think the latest ESG Fund would also exclude them?

R: The main area I personally rule out is arms manufacturers. You can argue that they’re needed. But I just don’t like products that are specifically designed to kill people, and serve no other purpose. You never know where they might be used in the world, or by whom. I suspect most ESG (environmental, social and governance) funds would avoid these too.

The other thing I won’t do is speculate directly on food commodities, such as wheat, soybeans, corn (maize) etc. There are a lot of poor people in the world that struggle to feed themselves. Helping to make their food even less attainable, by bidding up the prices, strikes me as being in bad taste.

That said, in principle, I have no problem investing in food producers, such as farming companies. They’re helping to solve the problem of feeding the world.

N: There’s been a lot of talk about how many of the funds and ETFs which are sold as being “ethical” – usually in an environmental way – are actually no different to other funds, or indeed hold more polluting stocks. Does this surprise you?

R: It doesn’t surprise me at all, since a lot of this stuff is a box-ticking exercise, rather than involving proper thought. ESG investing is fashionable at the moment. Many people want to feel that their investments are making a positive contribution to the world, or at least doing no harm, according to their own definitions of that.

The problem is that investment fads tend to lead to overpriced assets. That’s fun during the way up, but it tends to depress expected future returns once you’ve arrived at that higher level already. There’s also an elevated risk of sharp price falls in future, if a bubble bursts.

I suppose, on the plus side, if these supposedly ESG-friendly funds actually include a sizeable element of other things, that might reduce the risks or improve the future returns. But it’s still misleading to investors when this happens.

N: Is all this just an attempt for the financial industry to earn more fees?

R: To a large extent, this is just the financial industry doing what it’s best at, which is reinventing itself. My favourite example is when “junk bonds”, which are debt securities issued by financially weak companies, got rebranded as “high-yield bonds”. That sounds much more palatable, but they’re exactly the same thing.

Back in the 1990s we had something called “socially responsible investing”, or SRI. It was a similar sort of thing to ESG.

Slapping an ESG label on a fund means managers can get away with charging higher fees, supposedly for additional value-added services. To me it just looks like the modern equivalent of selling religious relics of dubious origin. “Buy my fund and receive absolution for your pollution sins.” Or something like that.

I’m far more interested in whether an investment has good prospects for making money in future. That’s already a big enough challenge, without pretending to save the world at the same time.

Nick Hubble
Editor, Fortune & Freedom