How Advisors Can Integrate Sustainable Investing

Aaron White, vice president of sustainable investing at CIBC Asset Management, said the change was driven by increased awareness, accessibility and overall demand from clients.

“Investors are increasingly interested in investing with their personal values ​​in mind,” he said.

According to the latest opinion poll from the Responsible Investment Association (RIA)nearly three-quarters (73%) of respondents said they were interested in responsible investing.

However, while 77% of respondents said they wanted their financial services provider to educate them about responsible investing aligned with their values, only 27% said they had ever been asked if they were interested.

In response to this growing demand, the Investment Industry Regulatory Organization of Canada (IIROC) has amended its know-your-client and suitability guidelines include ESG considerations when discussing investment objectives. (Earlier this year, the European Securities and Markets Authority (ESMA) has also proposed integrating sustainability into the adequacy.)

“IIROC has provided an avenue for advisors to have meaningful conversations with their clients regarding their responsible investing goals and objectives,” said White.

And as the investment industry continues to evolve, White said clients are increasingly asking advisers to go beyond traditional financial planning considerations.

Investors are increasingly interested in the non-financial impacts of their portfolios, and White said that presents a challenge for advisers as they navigate the client discovery phase. In the past, he said much of the disconnect was due to a perceived lack of demand for ESG investment solutions.

But “largely, when investors are presented with a viable investment solution that meets both their financial and non-financial goals, they accept it.”

Recent regulatory recommendations, combined with industry trends, provide advisors with an opportunity to differentiate their service and exceed client expectations, White said.

The client discovery process has historically focused solely on understanding a client’s financial situation, goals, and objectives, which “leads to a narrow, one-dimensional view of an investor’s needs,” he said. White said.

Additionally, when the client discovery conversation is about an advisor’s preferred investment approaches, not the client’s, “investors are left with a lack of understanding of how their investments interact with their personal beliefs,” White said.

Instead, advisors can talk to clients about “values-aligned” investments. Advisors who fully embrace IIROC’s new recommendations will also gain a better understanding of their clients’ beliefs and values, which “will enable advisors to create an engaging and personalized experience around investing,” White said. This, in turn, can lead to greater customer satisfaction, greater retention, and referrals.

Finally, not everyone has the same understanding of ESG. “Advisors who integrate values-aligned investing into their practice will need to be prepared to discuss varying degrees of investing across the ESG spectrum.” To do this, White recommends that advisors focus the conversation on the essentials, use real-life examples, and explain how returns can be improved, changed, or diminished depending on the strategy employed.

Fortunately, “the ESG and responsible investing landscape offers a wide range of investment options that allow advisors to customize portfolios to meet any investor’s financial and non-financial goals,” White said.

This article is part of the AdvisorToGo program, powered by CIBC. It was written without the contribution of the sponsor.

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