Outside voices and views for advisers

Break the sustainable-investing bottleneck

Advisers must overcome three barriers in order to serve clients' values

Jan 2, 2018 @ 7:00 am

By Evan Zall

InvestmentNews' December ESG section wasn't just a "feel good overview" to close out the year. You've probably seen that every financial news outlet in every corner of the industry is focused on sustainable investing as the next great leap for adviser strategy.

Motivating factors come from all directions. On the client side, a trove of evidence shows a steady shift among millennials and women to align their values with their investments, while Boomers simultaneously draw down for retirement and set their gift and estate plans in motion.

On the product side, both specialist and institutional managers are keenly aware of the demand curve. We've now had sustainable or ESG (Environmental, Social, Governance) funds launched by pretty much every major player in the last few years. Then there are mergers and new approaches creating scale from more sustainably focused players.

John Hancock's partnership with Trillium Asset Management and Boston Common Asset Management creates a rare unification of sustainability pioneers and conventional distribution channels. And the acquisition of Pax World Management by Impax Asset Management creates a multinational, $13-billion-plus pure play sustainable asset manager.


But there's still a bottleneck — and it might be you. Investment advisers are caught with one leg strapped to the Boomers and one to the future swath of clients. How can you serve two markets with distinct expectations of their adviser?

Rest assured, it can be done. Integrating sustainable investing requires understanding a new set of products, having deeper conversations with clients about personal values, and altering your own story about how you can deliver for the new investor.

Forget everything you think you know. If you break down the barriers that confine the message of traditional advisers, you'll see that integrating sustainability opens many more doors than it closes.

Barrier 1: "I don't want to turn off clients who think sustainability is 'soft investing.'"

That's a valid concern, so be strategic about how you present the addition of sustainable investing. Carefully consider the current message of your firm. Do you emphasize client service? Your experience? Your track record? Do you tell prospects how closely you listen so that you can support their goals?

Integrating sustainable investing only bolsters these messages. At its core, the approach is simply a way for clients to invest in keeping with the values that guide so many of their other choices in life. The relationship you're forging with them can go deeper, and the results you deliver can be more fulfilling to all involved.

Barrier 2: "I can't ask clients to sacrifice performance for sustainability."

You don't have to. In the past decade, sustainable strategies have measured up against a variety of benchmarks, proving that they can be just as effective — if not more effective – than agnostic portfolio construction.

In its early days, the practice of screening out giant swaths of the market gave socially responsible investing a reputation for trying to compete in a limited selection universe. But that's old news.

There are so many options out there that even a strictly sustainable universe yields immense product options. In fact, if you have access to a strong product lineup, you can likely talk less about sacrifice and more about how sustainable investing is simply a sound investment strategy.

Barrier 3: "I don't have time to get educated."

It's true, learning new strategies is not easy. But available resources are growing by the month, including a raft of conferences (The Economist, The SRI Conference, Morningstar), broker dealers, publications, and consultants who have been on both sides of the sustainable coin.

All of these parties know that the more the industry embraces the concept, the more capital will flow into sustainable vehicles.

(More: 10 companies boosting their ESG rating, and what it means for investors)

If you're into New Year's resolutions, you may want to add breaking down these barriers to your 2018 list. According to US SIF's bi-annual report, the percentage of assets in sustainable vehicles has climbed from 11% at the start of 2011 to 22% at the end of 2015, and that number is expected to jump again for 2017.

That's not a trend, it's the front end of a wholesale shift in the marketplace mindset.

To compete for clients in the years to come, start exploring your message, how sustainable investing has evolved, and where you can find reliable guidance.

Evan Zall is president of Longview Strategies.


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