Sustainability is the buzzword in the Advice industry at the moment. From articles, to conferences, to regulation, to specialized products; it’s everywhere! However, in reality most Advisers are only seeing a relatively small number of inquiries from clients.
So what’s really going on?
Research today shows that 90% of Australians believe it’s important that their financial Adviser provides responsible investing options. And the number one expectation Australians have of Advisers is to be knowledgeable about responsible investment. Right now that is translating to 20% of clients actively looking for sustainable investing advice – on average that’s 20 clients per Adviser – not such an insignificant number.
Where are these clients and why aren’t they asking about Sustainable investing?
When was the last time you had a client ask you for strategic planning. Never? It’s going to be the same with Sustainable Investing, if you don’t tell clients then they don’t know that you offer it, or what it is. We know from customer research that these clients are out there and are actively looking for help in this area. There is also a rise in the number of Advisers who are dedicated to Sustainable Advice, possibly making up to 10% of Advisers in the industry.
A simple solution is to make sure you include it in your marketing documents, website and fact find. Or start with a simple Mail out offering the service. You might be surprised how many of your clients want to have the conversation. Remember there is also now an implied obligation under FASEA to ask a Client if they want to consider Sustainability
What does sustainable investing mean to clients?
Sustainability is now ingrained in the decision-making process of the vast majority of Australians and means different things to different people.
What is clear is that there is a mismatch between what clients want and what investment managers are offering. This presents an issue for clients and an opportunity for Advisers to help clients understand what sustainability means for them when it comes to investing and find appropriate investment solutions. Over 30% of clients want to avoid Fossil Fuels entirely, whilst less than 10% of managed AUM does this. Conversely, less than 10% of clients state they want to avoid Tobacco, whilst 30% of investment management AUM focuses on this.
What are the issues Advisers face today?
At Ethic Adviser, we speak to about 30 Advisers a week so we hear a lot from Advisers when it comes to Sustainable Investing. What we don’t hear very often is that an Adviser does not have any clients that are interested in Sustainable Investing – it may not be all clients but all it takes is one for an Adviser to need to get across this topic. We also hear about the benefits Advisers see for themselves and their clients, as well as some of the issues they need to overcome, some of the most common are:
I Don’t have the experience to speak to clients about Sustainable Investing – To begin, it’s worthwhile looking back a little through the evolution of Advice to understand that Sustainable investing is the next evolution in deep values based Advice – there is nothing to fear! Once upon a time an Adviser’s role was to pick investments. This slowly moved to including other areas like, goals based planning, insurance planning and estate planning among many others. Discussing sustainability can be considered as the next phase of planning and is a great opportunity to have a new conversation with clients about an area they care deeply about, just as though you were talking about their family and wishes when it comes to estate planning.
A simple way to get experience is to plan the open questions you’d ask your clients about the topic and find tools to help navigate the conversation.
I Don’t believe it’s a good long term investment strategy – there is a significant amount of research to suggest that over the long term sustainable or ESG factors, have a positive impact on returns, or at worst does not have a negative impact. Even in the current environment where Russia’s invasion of Ukraine has caused a spike in energy prices, it will likely prompt an accelerated long-term shift towards renewable energy. The increase of oil and gas prices to their highest levels in nearly a decade has forced many countries to reconsider energy security, especially their reliance on fossil fuels from Russia. For example, the German government is proposing to increase the share of renewable energy sources from around 40% today to 100% by 2035, 5 years earlier than planned.
I Work from an APL or use Managed Portfolio so can’t do anything about it – due to the inherent efficiencies, most Advisers work from APLs or offer managed investment solutions giving them little flexibility to make changes at an individual client level or in a timely manner. Clients tend to understand this and appreciate lower fees and strong management principles.
This does not mean that Advisers cannot collect information from their clients and make necessary adjustments to managed solutions at the appropriate time. Even if that happens just once per year, clients will love having their investments be more aligned with their values. Chances are many of your clients will share some of the same views.
The benefits of Sustainable Investing conversations.
Given the interest from clients, it is clear that by engaging your clients on the topic you are going to deliver a service that they want. What we have heard from Advisers is that these conversations lead to better and deeper relationships with their clients – they are learning new things about their clients and are having personal conversations about factors that impact their lives – just as you would when talking to a client about their career, family or planning goals.
As a result this has led to increased revenue through attracting new funds or giving refreshed advice that factors in these considerations for the first time.
How can Ethic Adviser help with Sustainable Advice?
Ethic Adviser is a Discovery, Analytics, Research, Insights and Advice tool that enables every Adviser to successfully navigate Sustainable Investing conversations. Essentially empowering any Adviser to become a Sustainable Investing specialist without the need to change your entire Advice process, or pay many tens of thousands of dollars and commit hundreds of hours to access and interpret ESG data.
Our Discovery /Fact Finding tool guides you and your client through questions about sustainability so you can understand the areas they care about and how this might impact investment decisions.
Our analysis engine analyses existing or proposed investments and demonstrates where these investments are aligned and misaligned with the clients values. Giving you the opportunity to discuss what you and the client would like to do to make adjustments.
Our Research tool gives you access to institutional grade ESG data to research over 100,00 companies, ETF and Funds.
Whilst our Insights tool collects all the data from your clients and the decisions you make so that you can make adjustments to Managed Investment solutions when the time is right.
Our Advice tool provides you with an audit ready compliance trail and produces everything you need for post meeting emails follow ups, file notes and inputs into your Advice documents.
What does this all really mean though? This means saying goodbye to those late nights, spending hours trying to find out how ‘green’ a certain ETF or Fund is, or which causes they may be involved in, or even what the underlying holdings are within each fund. Ethic Adviser was built by Advisers so we know that Advisers are time-poor. With the Ethic Advisers interactive tool you can easily identify investments, collect data and even research to build portfolios that match your clients values. The result is less time researching and more meaningful conversations with your clients.