Interest in ESG investing is growing among advice firms and clients, with over 70% of paraplanners believing it will be the norm in years to come, but currently, traditional investments still dominate, a new Professional Paraplanner Parameters survey has revealed.
Nearly three quarters (70%) of paraplanners are seeing a rise in ESG investing within the advice industry, while more than two thirds (68%) say they are also seeing a rise in responsible investing in the media.
One paraplanner commented: “With COP 26 and all of the reporting in the news and the media, the push for ESG has become almost unavoidable.”
Another said: “There seems to be a lot more business chatter about ESG and clients are not against discussing it.”
More than three fifths (63%) of paraplanners said they had witnessed rising interest in ESG investing from clients, however a large number noted that many clients were still reluctant to change their investments.
One paraplanner commented: “There is definite rising interest from clients although many private clients at present just want to discuss it and once they have looked at it in detail, many don’t want to change from traditional solutions. However, with corporate and charity clients we are seeing a more determined view and changes in investment policies are becoming more common.”
Another said: “There seems to be a lot of noise about ESG investing but it’s not something that our clients are mentioning and even when we bring it up, most like the concept but aren’t that fussed and just want to know we’re picking the right funds for them.”
The sentiment was echoed by others, with one noting that while ESG appeared to be “flavour of the month”, most clients were not particularly interested apart from “paying lip service”, while another said many clients perceive ESG investments to mean lower returns.
A third of firms (36%) said that only between 1-10% of clients expressed interest in ESG/ ethical investments, while just over a quarter (27%) of firms said between 11-20% of their clients are interested in the sector.
A smaller percentage (18%) of respondents said between 21-30% of the firm’s client base wanted to know more about ethical investments, while just 3% of firms said between 41-50% of clients were interested. This figure fell to just 1% for firms who had more than 71% of clients interested in ESG investing.
ESG will become the norm
Despite this, 72% of paraplanners believe ESG principles will become the norm for investment managers over the next few years, with just 11% disagreeing.
One said: “With social media and media in general, there is a strong emphasis on doing better for the planet. As a result, fund managers will have to change their approach to accommodate customer needs.”
It is also likely to feature more prominently among younger generations, according to respondents.
One said: “As the wealth passes to younger generations, I believe they will demand more from the investment industry and take it mainstream from niche.”
Another said: “Not only will it become mainstream and the norm for all investment managers to have an ESG offering, it will also feed through to client level as they become more aware and feel more responsibility to ensure they are doing the right thing for future generations.”
However, one respondent believed that while appetite for ESG is increasing apace, there will be some funds and managers who will still hold on to ‘old’ principles.
Should clients be asked about ESG?
The results of the survey also showed that nine out of 10 paraplanners believe all clients should be asked about their ESG/ ethical preferences as part of the fact find.
One pointed out: “It’s an important consideration and you are not considering the client’s full circumstances if the question isn’t asked.”
The sentiment was echoed by others: “ESG preferences should always be taken into account even if the preference is ‘I don’t care’.”
Another commented: “I think it is a responsibility every business has to the planet. Obviously, it should not be forced upon clients but I do believe it should be spoken about to all clients.”
Currently, three quarters (74%) of firms ask all clients about ESG/ ethical investing, while 11% raise it with just some of their client base and a further 11% wait for clients to raise it themselves.
Many firms said it now forms part of their fact find, with one firm offering clients a specific ESG questionnaire while another said it is built into the firm’s PFQ process at the outset of the first client meeting.
