Advisers are reporting assets in sustainable funds or portfolios are on the rise, despite market headwinds, as client demand for sustainable investing grows according to our latest Sustainable Investing Tracker Study report (download a free copy here).

Percentage of advised client assets in sustainable funds or portfolios

The percentage of advised client assets invested in sustainable funds and portfolios has risen to 22% in August 2022, from 18% in April 2022. This mirrors the percentage of conversations where clients are raising the issue (22% up from 18%).Whilst we have heard from a small number of advisers that they view sustainable investing as a passing fad, at NextWealth we see this latest data as evidence that sustainable investing is a long term trend in the advice business driven by client demand.

Percentage of client conversations where the CLIENT raises the question of sustainable investing

The share of client conversations in which sustainable investing comes up reaches 22%, a 5% increase in the past two years. Whilst not a huge increase it suggests that more and more clients proactively raise the topic with their advisers.

Other findings of the report include:

• Advisers remain most confident in their ability to understand and match/ recommend solutions to their clients.

At the start of 2022 we saw a sharp drop in adviser confidence on all sustainable investing processes. The most recent results show a slight improvement, suggesting advisers are getting more comfortable with the category. We think this might be a case of the Dunning-Kruger effect, where confidence is falsely high at the start, drops off with a realisation that more needs to be understood and gradually lifts as knowledge and expertise grows.

• While confidence about managing clients’ investments is strong, when it comes to reporting the level of confidence dips, with a greater percentage saying they are only ‘somewhat confident’ or ‘not confident at all’. While the proportion of advisers who report the sustainability of investments to clients has increased by 9% to 59%, most only report for those clients who request it. The most common method of reporting sustainability is for an adviser to pass on an externally generated metric to the client.

To achieve streamlined reporting requires consistent data standards which currently don’t exist. Some advisers we spoke to said there needs to be an industry-wide campaign to get reporting data to align because individual firms are doing their own thing and this is adding to the problem.

• The most used strategies for sustainable investing are multi-asset funds, in-house built portfolios and DFM for model portfolios. Advisers who use bespoke DFM feel most confident when recommending sustainable products to clients.
• The core-satellite approach remains the dominant strategy used by two thirds of advisers. Full integration of sustainable investing criteria is the approach taken by one fifth of advisers.
• The proportion of advisers who report the sustainability of investments to clients has increased by 9% to 59% in Q3 2022. Most advisers only report on sustainability for those that request it.
• The most common method of reporting sustainability is for an adviser to pass on an externally generated metric to the client.

This series of reports is available free thanks to the support of our sponsors: abrdn, Aegon, Aviva Investors, FE FundInfo, Fidelity International, Iress, JP Morgan, M&G, Parmenion, Pictet and Schroders.