Suggestions for the curious but reluctant advisor.
Investor interest in Sustainable Investing is growing. Yet adoption rates among financial advisors still lag. Skepticism can’t be the only reason for the disconnect.
We invited Michael Young, Manager of Educational Programs at US SIF: The Forum for Sustainable and Responsible Investment, to share his perspective on the topic with The Flexible Advisor podcast. His initial observation is simple, sensible, and solvable.
Like any professional in any industry, Young said, “Financial advisors don't love when conversations enter a topic in which they don't have expertise. An advisor who is not confident in his or her knowledge about the topic, feels unprepared to answer a client’s questions, or is unsure how to implement will understandably avoid the topic.” Avoidance is probably not a sustainable option (pardon the pun).
Integrating a new investment concept into their toolkit is hardly unusual. Environmental, Social and Governance (ESG) is no different.
Encyclopedic knowledge about sustainable investing is not required to have a conversation.
Talk with your most loyal clients first to get comfortable presenting sustainable investment ideas.
Where do I start?
The first step, according to Young, is simply being open to learning. Encyclopedic knowledge is not required. “For many advisors, integrating a new investment concept into their toolkit is hardly unusual. There's always a new acronym. There's always a new technology to help serve clients, or a new strategy seeking to improve investment outcomes. This is no different.” He offers these ideas for an advisor who wants to begin the integration process:
It's okay to share with clients that this is a topic you’re going to explore together.
Begin with the basics.
“Teach yourself what ESG is and, importantly, what it is not. What Sustainable Investing is and what it is not,” Young said. “From there, it's okay to share with clients that this is a topic you’re going to explore together. They already trust your guidance. Why not be open and authentic about the fact that this is a new area for most people, including yourself?”
Share what you learn.
“There are plenty of tools, including visual aids, that you can share with clients to initiate the conversation. For example, US SIF has a free course for retail investors. Send it to a client and say, ‘It's important that you understand some of the basics so we can figure out what's important to you and whether we might want to consider some element of this for your portfolio.”
Expand your client conversations.
“Advisors already have tools to understand their clients’ risk tolerance, objectives, and areas of particular interest,” said Young. “It makes sense to incorporate questions about their interest or concerns regarding commonly considered ESG issues.” To better help understand that, visit the FlexShares ESG Hub where you can download a client questionnaire to gain insights on what’s important to your clients.
Use select, trusted clients as test subjects.
Young suggests starting with a few trusted clients. “Every advisor has certain clients, maybe the ones that consistently send referrals because of the trust and relationship established. Talk with them first, gather their questions and even their objections. Together you may decide that a sustainable strategy isn’t right for them. That's okay. You’ve still gained insights to refine your presentation.”
Make friends with your search engine.
The proliferation of platforms and tools dedicated to Sustainable Investing has been nothing short of remarkable. These resources range from in-house to third-party, subscription-based to free, all with varying degrees of sophistication. “Advisors need information that helps them stand out, that tells a compelling and well-researched story, that engages a client or prospect,” says Young. Many asset managers now offer useful information, often product-agnostic, to help an advisor craft an informative message. FlexShares is growing educational content for advisors and clients which can be found on our ESG Hub. Some other sites allow the user to research and assess specific companies, asset managers and investment products through a variety of filters. On some, an advisor can research a specific security simply by entering its symbol. Similarly, one can compare exposures among multiple mutual funds or ETFs, and how these funds score in different areas.
Our full conversation with Michael Young includes much more detail, including several online resources that may be helpful for advisors beginning their Sustainable Investing journey. You can access this, and all episodes of The Flexible Advisor, here, or wherever you get your podcasts.