I’ve had the privilege to meet with financial advisers over the past few weeks as part of the Schroders Regional Adviser Forum. It has been pure joy to see people face to face and to connect with financial advisers and hear about the conversations they’re having with clients.

I wanted to share a few of my takeaways:

It doesn’t have to be complicated

A few years ago, many advisers we spoke to were nervous to bring up ESG, sustainable or impact investing with clients. That’s changed. We’ve all become a lot more used to having the conversation. Some advisers still worry about going down rabbit holes and getting requests for exclusions, which can’t be fully supported. Here’s what a few attendees have suggested:

• Ask open-ended questions about goals with money: “What do you want to achieve with your wealth?”
• An adviser in Glasgow said that he presents three ranges of investment options to clients after the needs assessment: standard, passive or sustainable. He uses his DFM’s framework to explain the options from “light green to dark green”.

Document it

At the session in Bristol, we got into a discussion about documenting client preferences. This is critical. The expectation is that the regulator will want advisers to have a conversation with clients about their sustainable investing preferences. It’s really important to document these preferences and check them in review meetings.

Why now?

Some financial advisers worry about how to start the conversation with existing clients. One adviser told me that he tells his clients that “the market has matured and I am now confident with the solutions available.” We also recommend surveying clients to gauge interest. The survey results can be used as a basis on which to start a conversation.

Client segments 

We’re often asked if different segments of customers are more or less interested in ESG investing. The most popular assumption is that younger investors are more interested. Research bears this out but I caution relying too heavily on survey results. It’s important to look at actual behaviour not just responses to surveys.

NextWealth’s surveys of financial advisers show that overwhelmingly there is no particular pattern in the profile of client that is interested in investing sustainably. But consumer studies often show younger investors are more interested. I always advocate combining survey results with behavioural data where possible. In this case, I check survey results against how people are deploying their capital. As one adviser pointed out in Harrogate: young people might say they want to invest sustainably but how many of them own bitcoin? It’s a fair point.

A good check on how younger investors are deploying their capital source is the top selling funds on Hargreaves Lansdown. D2C platforms tend to have a slightly younger audience than those paying for on-going financial advice. I checked today – there is one ESG badged fund among the top 10.

Choose a partner

Alex Funk, CIO for Schroders’ Investment Solutions, offered some good advice about researching investment solutions. The different ratings houses are hugely inconsistent. Alex encourages advisers to choose one and use it consistently. Schroders built their own analysis tool, SustainEx. The important thing is not to use rating provider and methodology for one set of portfolios and a different one for a different set of portfolios. Get comfortable with the methodology of your preferred partner and apply it consistently.

Thank you to Gillian Hepburn and the team at Schroders for inviting me along. The update on the rules and regs was really helpful.

As for NextWealth… We’ll be updating our ESG Tracker Study in April. Get in touch to share your views and suggestions for what we should cover.