Financial advisers have a key role in educating the market about sustainable investment, given more than 70 per cent of investors have average to no knowledge of what exactly it means, a netwealth report states.
The approach the adviser takes with individual clients may need to be tweaked, however, depending on the client’s profile, interests, past behaviour and primary concerns, netwealth added.
The 2022 Advisable Australian Report zooms in on attitudes around responsible investing and the types of clients who are likely to partake or need more information. The report found more than two-thirds of investors were ‘definitely’ or ‘probably’ considering putting money into it. However, many said they wanted more evidence the investments would actually do good for the environment or society, or would perform as well or better than their other picks.
In the past few years, it’s become clear advisers have also been attracted to the responsible investment segment, with our own research finding more than half of surveyed practices planned to lift their ESG investment this year.
Figure 1 – Future ESG intentions
Source: Adviser Ratings' 2022 Australian Financial Advice Landscape Report
The client groups most and least likely to invest responsibly
The research from netwealth found there were four client types when it comes to responsible investment, which it dubbed: believers, pragmatists, doubters and sceptics. Unsurprisingly, netwealth argues each of these groups requires a different approach from advisers.
Believers are typically younger and concerned about environmental and social issues, but only one-in-three have invested in responsible assets in the past. Concerns about risk and return could be partly to blame, with the vast majority saying they’d invest if returns were superior to other products, netwealth stated.
“It will be important to demonstrate the real impact and benefits of the investing and illustrate the credentials of the fund managers and organisations they are investing in – many of whom are not new, with solid track records,” it noted.
Pragmatists, meanwhile, are more interested in responsible investments for their return profile.
“In order to best meet the preferences of pragmatists, focus will need to be held on financial performance alone,” the report stated.
Doubters, as the name suggests, may need more “hand holding”, netwealth explained.
While more than half care about environmental issues, many describe their literacy around responsible investment as low.
“Environmental and social benefits alone will not be enough to convince doubters to invest, so onus will fall upon strong financials to make the case for responsible investing to these clients,” the report stated.
“Portfolios should be constructed to ensure financial performance and credentials are priorities, which are well supported by research. To achieve this, a negative screening approach from well-credentialed fund managers that have supported research might be a good place to start.”
The final group – sceptics – may not be worth convincing, netwealth advised. This group has a lower interest in and understanding of responsible investment.
“For this reason, we suggest advice firms steer clear from responsible investing topics when advising to this segment.”
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