Capture More Family Assets by Presenting ESG Investing

Are your wealthy clients interested in Environmental, Social, and Governance (ESG) investing? Yes! In the 2018 report “Insights on Wealth and Worth,” an annual survey of High Net Worth (HNW) investors, U.S. Trust reported, “40% of HNW investors currently own or are considering using impact investments.” Interest is strong across generations, "77% of Millennials, 59% of GenXers, and 34% of Baby Boomers [1] are interested in these types of investments," says U.S. Trust.

You can download a copy of this excellent report here.

Cross-generational interest will help you gather more assets

We have long said that your client is the primary wealth holder and his or her family. Yet meeting the other family members, much less discovering something all of them will have an interest in, is difficult to say the least. 

Because of interest across the spectrum of generations in ESG investing, this is a perfect subject to use for initiating a meeting with the families of your HNW/UHNW clients. These conversations lead to capturing new assets from the various family members as they come to realize coordination on a common interest makes more of an impact than individual disaggregated efforts and having a single financial advisor makes such coordination possible.

Trillions Now Under ESG Management

The “go to” site for ESG information is the Social Investment Forum. According to SIF, “Sustainable, responsible and impact investing (SRI/ESG) assets have expanded to $12.0 trillion in the United States, up 38 percent from $8.7 trillion in 2016.” [2]

Take These Three Steps To Take Advantage Of This Trend

Step 1. Recognize that awareness on your part of ESG opportunities creates competitive advantage.  The following list does not encompass all issues ESG investors are focused on, but you can use them as keywords. If someone in a client’s family expresses an interest in one or more of these issues, differentiate yourself with a brief description of ESG investing.

• Climate Change
• Resource and energy efficiency
• Corporate political activity
• Sustainability
• Gender pay equity
• Equal opportunity and diversity

Step 2. Understand how to use common ESG Metrics to create competitive advantage. Certain corporations will meet the criteria established for one or more related ESG issues more comprehensively than others. You can guide your client toward the investments that most closely match their interests by using one of the many ESG rating services.

The largest of these firms is MSCI which provides information to institutional investors. This firm scores more than 23,000 mutual funds on 100 different ESG metrics, by evaluating the weightings of the various ESG scores of the underlying companies in the fund. [3]

You hardly need a tool of this complexity, but you do need a tool. Your firm may have a preferred list of ESG funds, or you may have ESG screening capability on your investment advisory platform. Understanding ESG scores, helping clients understand “best” is relative, and being able to use screening tools creates competitive advantage.

Step 3. Discuss the topic of ESG investing to create competitive advantage.  Be different. Few Financial Advisors are initiating these discussions. According to the U.S. Trust report cited above, “Despite strong interest in ESG principles, and steadily growing adoption, only 11% of HNW investors have had discussions with their financial advisor/wealth manager about them.”

Investors want to know about ESG investing, but 89% of Financial Advisors s don’t bring up the subject.  It is natural to shy away from doing something different, especially if you don’t feel well informed.

Prepare yourself to discuss the ESG topic by downloading and reviewing this eight page briefing from the Social Investing Forum (which has additional information on the subject): www.ussif.org/files/Publications/Retail_Investor_Guide

If you take these three steps, you can approach your clients with confidence that you can help them select appropriate ESG investments. Your knowledge of this area and your ability to coordinate ESG investing across generations will help families realize the aspirational impact they desire for their wealth. Because you are the expert and the coordinator, placing all family assets with you will seem like the logical next step.

Resources:

[1] https://ustrustaem.fs.ml.com/content/dam/ust/articles/pdf/insights-on-wealth-and-worth-2018/Detailed_Findings.pdf

[2] https://www.ussif.org/files/2018%20Infographic%20money%20manager

[3] https://www.msci.com/esg-fund-metrics

To learn more about this topic, register for our Fiduciary Investment Management course. 

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Contributing Writer: Subject Matter Expert Charles McCain