How well do you really know your clients?

For financial professionals only

The key to a successful adviser/client relationship is really knowing your clients and understanding their preferences. That’s how you build trust over a long-term partnership. But when it comes to sustainable investing, you may be surprised by your clients’ beliefs.

It’s easy to assume that certain clients will be more interested than others in considering environmental, social and governance (“ESG”) in their investments. There is sometimes an assumption that millennials and women are most concerned with ethical considerations, while older investors, particularly men, don’t view them as being important.

However, ESG is a rapidly growing area and there are an increasing number of surveys that track how investors’ views are evolving. The most recent studies have revealed some interesting trends.

Men’s attitudes to ESG investing are catching up with women

 There’s a general view that women tend to be more interested in sustainable investments than men, and certainly this appeared to be the case in recent years. In 2017 women were 17% more likely to be interested in ESG than men. However, this gap has narrowed significantly. By 2019 the differential between men and women had reduced to only 3%, according to Morgan Stanley research (1).

This suggests that men are catching up with women in their concern about ESG issues and that public views are evolving. For example, some clients may have become more concerned about climate change due to recent extreme weather events like the Australian wildfires earlier in 2020. Or maybe the COVID-19 pandemic is making people think more about company tax policy, executive pay and other governance issues.

Another study by Legal & General supports the fact that men and women may be more closely aligned on ESG issues than previously thought (2). While more men would prioritise portfolio diversification and prefer to stay invested in fossil fuels (27% of men versus of 14% of women), social issues were found to resonate more strongly with men. 61% of men surveyed would reduce exposure to companies with a negative social impact, compared to 49% of women. On governance issues, women and men weren’t too far apart – 64% of women would divest from companies with poor pay practices versus 56% of men.

What about the attitudes of different age groups?

One assumption that does seem to hold true is that millennials have more interest in ESG issues than generation X and baby boomers. 95% of millennials said they were interested in ESG investments versus 85% for the overall population, while 67% of millennials have at least one sustainable investment compared to 52% of the wider group (according to Morgan Stanley’s study). 55% of millennials who use an independent investment advisor discussed ESG with them, compared to 25% for generation X and 11% boomers, (based on a study by Allianz (3)).  This suggests a strong link between younger age groups and a focus on ESG issues.

However, it appears this is not uniform across ESG issues. While millennials are reported to be most concerned about climate change and plastic pollution (1), older generations feel more strongly about unfair pay practices. This is especially true of older women – who perhaps are more likely to have had personal experience of this (2).

The need for personal advice

Since we’re all individuals it’s not possible to assume what a person thinks about ESG based on their age, gender or other characteristics. While recent surveys suggest some trends, there is clearly variation of views by age and gender. Investors’ ESG preferences are clearly evolving and there’s heightened awareness of ESG issues among investors in general.

The FCA has stated its intention to bring in new regulation, expected in early 2021, where advisers will be required to discuss their clients’ ESG preferences as part of the fact-find process to ensure that investments are suitable. A simple question such as “are there any ethical, social, environmental or religious issues that you’d like us to take into account when looking at your investments?” would be one way to open up the conversation.

This is a real opportunity for advisers to get closer to clients and have a richer discussion about their values. With ESG investments becoming increasingly popular, it’s important that advisers can help in this space – both to attract new clients and retain them over time – as more ESG-minded millennials inherit wealth.

We encourage you to have more conversations about ESG investing with your clients, even if this is something you have discussed before. Their views may have evolved, and you might just be surprised.

  1. Morgan Stanley Institute for Sustainable Investing study, which included 800 high net worth Americans (investable assets of at least $100k) in 2019.
  2. Legal & General Investment Management study in 2020 “Finding the Greenest Generation”, based on 988 UK-based members of defined contribution pension schemes.
  3. Allianz 2019 “ESG Investor Sentiment Study”, which surveyed 1,000 Americans.

This article is for financial professionals only. Any information contained within is of a general nature and should not be construed as a form of personal recommendation or financial advice. Nor is the information to be considered an offer or solicitation to deal in any financial instrument or to engage in any investment service or activity. Parmenion accepts no duty of care or liability for loss arising from any person acting, or refraining from acting, as a result of any information contained within this article. All investment carries risk. The value of investments, and the income from them, can go down as well as up and investors may get back less than they put in. Past performance is not a reliable indicator of future returns.  

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