In its new report, Understanding Australian Advice Clients Better, Netwealth found that Australians receiving financial advice are placing a higher value on environmental and social impacts when choosing where to invest in recent years.
Responsible investing is gaining popularity across Australia as a whole, with the research finding that 52 per cent of Australians receiving advice have responsible investments in their portfolio, up from 36 per cent in 2021.
The “emerging affluent” group has had the most significant increase in recent years, according to the research, with 76 per cent of the demographic group having responsible investments in their portfolio, up from 58 per cent in 2021.
The report defined the “emerging affluent” demographic as 18 to 44 years old with a personal income greater than $100,00; a household income greater than $150,000; a household investment portfolio greater than $250,000; with a residential property equity greater than $650,000; or a household super over $100,000 if aged 18 to 34 or over $250,000 if aged 35 to 45.
When ranking the importance of factors when considering an adviser and their services from one to 10, the “emerging affluent” valued social and environmental impacts higher than any other demographic.
“Contrast can be found between the segments when looking at the importance of the environmental and social impacts of an advice firm, where the younger emerging affluent rate these as much higher (7.3 and 6.7) in importance than their older counterparts,” Netwealth said.
Highlighting the prevalence of values-based investing, the report said that the majority of clients hold value alignment as the most important factor when investing.
“Around one in six (63 per cent) advised clients rank social and responsible factors as most important when choosing an investment,” Netwealth said.
“[They] will choose an investment if it invests in renewable energy (25 per cent), takes a stance against funding alcohol, tobacco or gambling (20 per cent), or against child labour and human trafficking (18 per cent).”
Far from trading wealth for values, the report found that many clients engaging in responsible investing believe it is a more profitable investment path, with many choosing it over other options due to its financial benefits rather than solely on a personal values basis.
“Advised clients do not consider they have to sacrifice returns to invest responsibly, with half believing returns are as good as traditional investments, and a further third (36 per cent) thinking they are better, up from a one in five (22 per cent) from the previous year,” Netwealth said.
“In fact, the top drivers when choosing these opportunities are mostly financial (91 per cent) of those under advice, followed by the desire to do good (63 per cent) or if it comes with an adviser recommendation (46 per cent).”
According to Netwealth, in conjunction with the economic benefits, personal values are still playing an important role in advised Australians’ decision to invest responsibly.
“They choose these investments to have a positive impact on the environment (41 per cent of those that own) and for their investments to be consistent with their personal values and beliefs (39 per cent). Social impact is also important as well as having a positive global humanitarian impact,” Netwealth said.
There is a continuing upward trend in responsible investment, according to Netwealth, with more clients looking to expand their engagement with these offerings in the future.
“Those investing responsibly have allocated almost half of their portfolio to responsible investments (47 per cent, an increase from 2021, 43 per cent),” Netwealth said.
“This momentum is set to continue with the majority of those advised clients already investing in responsible investments saying they will increase their holdings (70 per cent) or maintain them at current levels (23 per cent).”
The research found that Australians are looking to improve their financial literacy, particularly in relation to responsible investing, with “emerging affluent” clients showing the most enthusiasm on this front.
“Understanding of responsible investing is also trending upwards, with more than half of advised clients rating their understanding as high (57 per cent), an increase on the previous year (42 per cent),” Netwealth said.
“Meanwhile, the emerging affluent client’s understanding has increased sharply (87 per cent, up from 58 per cent).”
