Do advisers need to prepare for influx of ESG-crazed clients?

Environmental, social and governance (ESG) investing is slowly becoming a mainstream strategy with financial advice clients.

According to Quilter’s client profiler tool, just 12% of advice clients are ‘ESG dedicated’, meaning they want ESG factors to be a major influence on how their portfolio is managed.

Meanwhile, there has been an even split between those who are ‘ESG focused’ and ‘ESG aware’.

ESG focused means the client knows what responsible investment means and will take ESG factors into account when selecting a portfolio, whereas ‘ESG aware’ clients are simply made aware of the ESG rating of their portfolio.

Overall, 56% of clients are either ESG dedicated or focused, meaning more than half want ESG factors to play a role – to some extent – in how their portfolio is selected or managed.

Source: Quilter March-June 2022 data

David Tiller, commercial and propositions director at Quilter, said: “The data from the tool shows that responsible investing is not a one-size-fits-all. While the demand for and awareness of investments that actively consider ESG factors has grown over recent years, there are varying degrees of preferences when assessing clients psychometrically.

“It’s especially important to acknowledge the middle ground of clients who may not be ready for an ESG dedicated portfolio but who would still like to select their portfolio partly on the basis of its ESG rating. As responsible investing becomes a major theme in adviser-client conversations, advisers need to be able to measure, articulate and audit client preferences.”

Expect surge

So, should advisers prepare for an influx of ESG-crazed clients?

Andy Miller, investment specialist at Quilter, told International Adviser: “Definitely wouldn’t expect an influx of ESG dedicated. Many advisers already know who those clients are, and there has not been a big increase in the last year. I suspect that will increase over time as time goes on – for example due to unusual weather events.

“However, the story here for me is the large proportion in the middle focused who want ‘some’ responsible overlay. At Personal Finance Society (PFS) events, we have started by asking how many advisers have had clients ask them for responsible investment, which means the client has pro-actively raised it with the adviser.

“Not that many advisers raise their hand – but these are probably dedicated clients, as it is important enough to them to raise the issue without being asked. The point we are trying to drive is that many advisers may be unaware of clients who sit in the middle focused if they have not properly profiled their client bank.

“These clients may have a view, but are less likely to raise this proactively as it is not central to their goals. And if your questioning from there isn’t appropriate you may not get a full view of the client preference. So it isn’t so much an influx of new clients, it is understanding the clients you already have.”