ESG imbalance between client and adviser
There is an imbalance between advisers and clients over who brings up the topic of environmental, social and governance (ESG) investing.
Speaking to Money Management, Dave Rae, adviser at Federation Financial and a member of the Responsible Investment Association of Australasia (RIAA) certification panel, said advisers should not use ESG only if the client demanded it.
He said: “According to the RIAA, 86% of Australians expect the adviser to ask them about ESG. It is not the case that the client will necessarily raise the issue, they are waiting for the adviser to bring it up.
“There was a reluctance from advisers in the past because they didn’t have enough knowledge about it but now clients expect it.”
The RIAA research also found 90% of consumers felt it was important their advisers provided responsible or ethical options and 87% felt comfortable discussing their values with their adviser.
However, this contradicted research by Research Affiliates that advisers’ use of ESG strategies was driven by client demand. In its global report, it found client demand was the primary motivation for 63% of advisers who used ESG strategies.
The study also found advisers lacked a written policy on ESG and preferred to discuss it face-to-face.
Rae said: “That doesn’t surprise me, ESG is not an area where advisers have done well and a structured approach would be valuable so they know what they are going to bring up with clients and have a clear policy on it”.
A written policy would also help to ensure that advisers went through the same ESG process with each client rather than waiting to hear their preferences.
He also said clients were seeking more quantitative data on how their investment was contributing in a positive way, which could be difficult to provide as there wasn’t a standardised approach to reporting.
“Integrity of data is a problem, you won’t ever get 100% accurate reporting. The non-financial metrics are a good starting point and they will improve over time thanks to regulation coming out of the European Union,” Rae said.
AUTHOR
Laura Dew
Recommended for you
VBP consultant Sue Viskovic has warned advisers thinking of going self-licensed that they need to act “from a business head, not an adviser head” when it comes to scaling up their practice.
An inquiry is due to probe the collapse of Dixon Advisory and its impact on the Compensation Scheme of Last Resort.
A report has highlighted a growing appetite among high-net-worth individuals for private market investments, creating a significant opportunity for advisers.
The two firms have announced a new online development program to support career changers, advice support staff and university graduates in joining the financial advice profession.
