Expert: Tom Wildgoose - Nomura Asset Management Facilitator: Ben Wright
Headlines:
- Having a full discussion about ESG with a client is seen as “grit in the wheel” elongating the meeting and therefore making the advice less profitable to provide
- Advisers not being comfortable explaining is stifling ESG being used more broadly
- The industry is at the beginning of its ESG journey – will become much more part of normal life in the future as people get used to it
- Sharing best practice (connecting leaders and laggers) is the way to show others how to improve
Context:
Clients aren’t clear on what sustainable investing is. Advisers need to ask the right questions or there is a danger of clients just saying “yes”, without understanding what they are agreeing to (i.e. would you prefer if your investments were in good causes” – but what does that actually mean?)
Advisers don’t understand ESG properly so find it hard to explain to clients. More adviser education is needed so that they understand the different approaches and the different merits of them all.
Most ESG investors have chosen those funds for another reason (i.e., performance/return) rather than ESG being the main reason they invested. Based on markets, funds are searched on performance criteria and the ones that are at the top selected – these happen to have been ESG.
It’s an adviser’s job to educate clients about ESG. Likened to risk profiling from 20 year ago (“are you top, middle or bottom?” – no one understood it so it wasn’t explained well. Now risk profiling is a science so it also needs to be explained well to clients.
Can be seen as “grit in the wheel” to adviser efficiency. Delving into a client’s ESG preferences means it takes an adviser more time to complete the advice, therefore increases the cost of servicing that client – it’s easier for an adviser not to ask than go down the rabbit hole of which areas the client wants to invest in/avoid.
Key takeaways:
- It’s clear that more education is needed for advisers so they can educate their clients in this area. Most advisers understand the theory of ESG, it’s the practical implementation that isn’t understood
- Working through some practical examples at events would make a real positive impact in this space
- Simplification of the naming conventions would also make life easier for all
- While ESG isn’t fully understood, it’s likely to be skirted around by most advisers with them just doing the minimum required for compliance rather than really getting into the conversation with clients
