New State Street tool helps advisers determine if clients want ESG investing

Asset manager hopes the Values Discovery Tool aids advisers' conversations about new investment strategies

Oct 2, 2018 @ 12:10 am

By Ryan W. Neal

State Street Global Advisors has a new digital tool that gauges a client's potential interest in environmental, social and governance investment strategies.

The asset manager hopes its Values Discovery Tool will address what it says is a gap between consumers' interest in ESG investing and advisers' ability to provide it. According to research State Street is releasing Tuesday with the tool, half of investors want their adviser to speak to them about ESG investing, and 59% believe it's important to invest in companies trying to make the world better.

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But many advisers still aren't talking to clients about ESG as a potential investment strategy, said Mirtha Kastrapeli, global head of research at State Street's Center for Applied Research. Investors currently in an ESG strategy learned about it through their own research.

"[Advisers] are reluctant, they do not know how to start those conversations," Ms. Kastrapeli said. "The purpose of this tool is to break the ice."

Like the software used by advisers to determine a client's risk tolerance or financial goals, the Values Discovery Tool provides an online questionnaire. Ms. Kastrapeli said the questionnaire is available for free on State Street's website and can be completed in five minutes. It generates a report for the adviser showing whether the client is indifferent, interested or an advocate for ESG investing.

The report also shows how clients compare to their peers and how important individual issues are to the client to help the adviser know how to tailor an ESG strategy. Though the tool doesn't recommend specific products or strategies for the adviser, it opens the door for new, engaging conversations with clients, Ms. Kastrapeli said.

One reason advisers haven't been proactive in reaching out to clients is that they are still figuring out exactly how to talk about ESG investing and offer it in a portfolio, said Sam Miller, senior investment strategist at RIA Signature Estate & Investment Advisors. Advisers and clients have been confused by the web of terms to describe socially responsible investing, he said.

"Leave it to our industry to make things really confusing," Mr. Miller said. "We see this with every type of new strategy to come out."

Seeing a lack of products on the market, SEIA launched its own model portfolio consisting of socially conscious ETFs and mutual funds.

Mr. Miller said he loves the idea of a digital tool to help determine what sort of ESG product a client would be interested in.

"If I feel like my portfolio is tied to my personal values because of this process I went through, that's a portfolio I'm going to stick with," he said.

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Brie Williams, head of practice management at State Street Global Advisors, said the firm's research indicates there's a strong business case for advisers initiating a conversation about ESG, even if clients are "indifferent" to it.

Sixty-nine percent of ESG investors said it helped manage volatility, and 54% cited lower downside risk as a reason to incorporate ESG investing, according to State Street's research. Ninety percent who worked with an adviser on ESG said they were "satisfied" or "extremely satisfied" with the investments.

"It's clear that this is not about a trade-off, performance is paramount," Ms. Williams said, adding that improvements in how companies report ESG data are enhancing how the information can be used to rate investments. It's an opportunity for advisers to increase client satisfaction and engagement while improving returns.

(More: TD Ameritrade adds socially aware portfolios to retail robo adviser)

"More importantly, when we look at the track record of showing that ESG strategies have the potential for better risk-adjusted returns than conventional strategies, it's hard to ignore," Ms. Williams said.

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