Bring ESG into conversations or risk losing younger clients

Advisers need to introduce responsible investing themes into their conversations with clients or risk losing younger client in the generational wealth transfer.

In a roundtable with BT, financial adviser Dave Rae, said it was important to keep younger clients on side as they would likely inherit the assets of their family at a later date and would be more keen than older generations to invest in a responsible way.

Some $3.5 trillion is expected to be passed onto the millennial generation by baby boomers in Australia over the next 20 years, presenting a client pipeline for advisers.

“Advisers have to start to build ESG [environmental, social, and governance] into conversations with clients and the advice process or they risk losing clients in the intergenerational wealth transfer. Even if the clients are uninterested in it then their kids will be so it is important to bring it into the conversation and you can also bring the kids themselves into the meeting. You will also have a better chance of hanging onto them as clients through the wealth transfer process then,” Rae said.

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He said it was important to establish at the outset what a clients’ investment preferences were from an ESG perspective and how it could be implemented around their portfolio allocations, regardless of whether that was in shares, managed funds or model portfolios.

Also on the roundtable, Simon O’Connor, chief executive of the Responsible Investment Institute of Australasia (RIAA), added adviser conversations on the topic of ESG would become “better and better” as the sector developed.

“There will be greater transparency and how people’s investments have an impact on the real world. We will see more reporting and disclosure from fund managers and companies as to what they have achieved and what changes have been created,” he said.

“There will definitely be more adviser conversations on the topic, it will be more exciting and the conversations with clients will get better and better.”

He said the COVID-19 pandemic had been a “big test” for the responsible investment industry and he was pleased by how it had stood up during the market downturn.

“This year was a big test for responsible investment but we saw that funds which focused on ESG or responsible investment outperformed and performed even more strongly against those which were ESG laggards as the differential has expanded,” O’Connor said.

“Not only did they hold up in performance, we also saw more capital allocated to them. The pandemic strengthened investors’ resolve about ESG and about how critical is to driving investor outcomes.”

In an RIAA survey, two-thirds of respondents said they understood responsible investment did not mean sacrificing returns which O’Connor said was a big jump compared to previous year’s survey.

“The penny has dropped for many, there has been a significant shift in the last 12 months. People are realising why would they not invest in these good companies?”