What You Need to Know
- Advisors who ignore the move into ESG investing do so at their peril.
- Clients who know about ESG want overwhelmingly to be invested in these products.
- Going beyond basic metrics to better understand client beliefs can reshape an advisor’s value proposition.
Global environmental, social and governance based investment assets are on track to exceed $53 trillion by 2025, representing more than a third of the $140.5 trillion in projected total assets under management, according to Bloomberg.
What’s in it for advisors? A growing business for a lifetime if they take the right steps to capture the opportunity.
Demand for ESG investing has hit record highs. Yet, only a third of U.S. adults know about ESG options, according to a recent Yahoo Finance-Harris poll. Many advisors don’t introduce ESG options to their clients or ask clients about values, thanks in part to a perceived lack of demand.
Yet, 77% of investors familiar with ESG choose to take that approach in their investment decision-making, according to the same poll. In other words, when investors know they have the option to bring values into their portfolio without hurting returns, they are more than likely to opt in.
Advisors taking a passive, reactive approach to introducing ESG and values-aligned investing to their clients could soon face a reckoning, while those who take a proactive approach have a massive opportunity to deepen their value proposition, stand apart, and grow their business.
Here are the three steps every financial advisor must take to make that a reality.
1. Stop making products primary. Focus on people (clients).
Most financial advisors intuitively understand that clients want personalized, objective guidance that aligns with their needs. To deliver, advisors must put the person first; not to sell products and services, but to first listen and understand.
In practice, many advisors default into the habit of selling preferred investment approaches or portfolio solutions rather than their unique ability to listen and provide people-first, unbiased, invaluable guidance.
A conversation around values-aligned investing is the perfect catalyst for reinventing an advisor’s initial engagement with prospects and clients.
When it comes to a values-aligned portfolio, advisors must first understand what matters to the client beyond traditional financial goals to deliver the right portfolio to a client. So, put away the investment presentation, lead with an assessment process, and just listen.
2. Recognize and reposition ESG as prudent investing.
Advisors initially assumed that ESG-integrated portfolios would underperform relative benchmarks or expose investors to added risk for the same returns.
Yet, the world’s largest asset managers continue to validate ESG integration not just for its moral or ethical merits but also for how it serves as a governor of risk: a fundamental step in fully assessing companies and their long-term viability.