Ethinvest senior financial adviser Mike Josephson said ahead of the ESG Summit 2023 that retail clients (followed by institutional investors) are demanding ethical investment solutions, and as such, it is the adviser’s duty to initiate conversations with their clients.
“While some people will critique it and say perhaps it’s the flavour of the month, I think that it’s really important for advisers to step back and remember that this is being driven by consumer expectations and large-scale shifts in relation to climate change and concerns around environmental and social standards,” Mr Josephson said.
“My view is, this is not a fad. I think it makes sense for advisers to get comfortable with having these conversations with clients that say they don’t want to invest in something or are keen to invest in something else.”
On the other hand, not all clients will express interest in ESG investing themselves, so the onus is on advisers to ask their clients if they want to invest ethically or if there are any areas they wish to avoid or support.
These questions could be included in an adviser’s fact find, but advisers should ask open-ended questions, particularly because retail clients may not be familiar with terms like ESG or ethical investing, Mr Josephson highlighted.
“You need to explain what those terms mean and then ask if the client wishes to avoid or support any investments based on their values,” he said.
Mr Josephson spoke to InvestorDaily ahead of its ESG Summit 2023 in March, where he will participate in a panel discussion about the strategies he used to integrate ESG investment advice and how he conducts conversations with clients around ESG and ethical investing.
Understanding a client’s values ties back to an adviser’s responsibility to know their client, which subsequently helps them align their investments with those values, Mr Josephson opined.
Advisers could even have broader conversations with clients around charitable giving and philanthropy and what they support or wish to support, he added.
“I think this creates a stickiness with clients because it adds an extra dimension to what’s being discussed and what they’re looking for in addition to just investment returns. Often, it helps you to know your clients better because you learn about their values,” he said.
However, Mr Josephson warned advisers against imposing their values onto their clients and suggested providing them with tools to aid the discussions.
“It’s best not to make your questions overly prescriptive and just give them a checklist and ask them to tick off the ones they want or don’t want. There’s nothing wrong with that. It’s just about having that discussion with the client,” he said.
Some clients may require a tailored portfolio that includes or excludes specific industries or companies and, as such, may require advisers to include specific shares besides managed funds, or exchange traded funds (ETF), Mr Josephson noted, which may require a specialist to handle the client’s portfolio.
Advisers would require knowledge in these specialist areas and an understanding of the different products and solutions available in the market.
“You need to be able to translate the client’s preferences and values into practical solutions and make it clear to the client that you can do that, and I think that can be nuanced,” Mr Josephson said.
He concluded that advisers who cannot assist clients in these specialised areas must be upfront, suggesting that they could refer them to other advisers with expertise in those fields.
To hear more from Mike Josephson about how to make the internal shift into ESG investment advice and how to initiate these conversations with clients, come along to the ESG Summit 2023.
It will be held on 23 March at Aerial UTS Function Centre, Sydney, and on 29 March at Grand Hyatt Melbourne.
Click here to book your tickets, and don’t miss out!
For more information, including agenda and speakers, click here.
