Firms that do ESG well receive more referrals
By MAX TENNANT
2020 will doubtless be remembered most of all for the coronavirus pandemic. But new research from the United States suggests it has also been a pivotal year in the evolution of values-based financial advice.
JD Power says sustainable and socially responsible investing have shot up the list of priorities for financial advice and planning firms across the States.
ESG is the second-most important factor advisers consider when evaluating a fund manager, right behind “helps me do my job better” and ahead of “solid investment returns”.
By contrast, the fund manager’s reputation for having a “world-class investment team” is sixth on the list of most important considerations.
“This is a big deal,” says Mike Foy, JD Power’s Director of Wealth Management Intelligence, who authored the report.
“(Advisers’) brand image and fund selection is being driven by perceptions of environmental and social awareness. Returns, of course, are still important, but it is clear that (advisers) are looking for something more for their clients.
“It is still early in the industry’s evolution toward a more socially conscious approach to investing, but it’s very possible we will look back at 2020 as the year that ESG moved from novelty to mainstream.”
Growing demand from clients
The report also finds a direct connection between the increase in interest in ESG among financial advisers and a growing demand for ESG investment strategies from clients and prospective clients.
Those under the age of 35 are particularly keen to factor environmental and social issues into their investment decision-making process. 56% of investors in that age bracket range rate their advisory firm a nine or ten out of ten on ESG issues.
Overall, across the study sample, clients who scored their firm a nine or ten for ESG had average satisfaction scores of 922 out of 1,000 points. This compares with an average satisfaction score of 739 for those who scored their firms at a six or lower.
ESG boosts referrals
Encouragingly, 76% of clients scoring firms at a nine or ten for ESG said they “definitely will” recommend their investment firm to friends and family, as opposed to just 32% scoring their firm as a six or lower.
“For (advice) firms at the centre of this rapid shift in investor priorities,” said Mike Foy, “now is the time to move beyond simply paying lip service to ESG issues.
“Firms must find ways to more effectively ‘prove’ their commitment and demonstrate to various stakeholders that this is an important topic to the organisation.”
Similar story in Britain
Figures show that the growth in ESG investing in the US is mirrored here in the UK.
Research by the asset manager Federated Hermes, published in May this year, showed that 85% of advisers surveyed reported a rise in client requests to allocate capital to ESG funds since the start of the Covid-19 outbreak.
Only slightly fewer — 82% of them — said they expected the current crisis would result in more clients investing in pursuit of ESG goals in the future.
Make no mistake, this is a secular shift and not just a passing trend.
As the JD Power research shows, values-based advice is a win-win-win situation. It’s a win for the environment and wider society; a win for clients; and a win for financial advice and planning firms which make ESG and values-based advice an integral part of their value proposition.
MAX TENNANT is a Managing Partner at Global Systematic Investors and the founder of Ifamax Wealth Management.
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