An investing strategy that could help sustain deeper client relationships
Advisors have an opportunity to shore up client relationships with a poorly understood area of investing: sustainable investing.
But advisor-client conversations are getting held up over roadblocks, such as a confusing alphabet soup of terminology (sustainable investing also sometimes goes by terms such as SRI and ESG), according to a new UBS survey.
“When you connect with clients on a deeper level about something they care about, it leads to deeper relationships,” says Sameer Aurora, head of client insights of the Client Strategy Office at UBS Global Wealth Management.
Both wealthy and young investors want to explore ways to align their investments with their values, according to the study. And, not surprisingly, advisors can play a key role. Nine of 10 clients with ESG investments credit their advisor with being critical to their sustainable investing decisions, according to the UBS survey, which polled 5,300 high-net-worth investors in 10 countries. The investors had at least $1 million in investable assets and the research was conducted between June and August.
Still, roadblocks remain, not least advisors’ own discomfort and misperceptions, according to a new report from research firm Cerulli Associates.
Cerulli foresees growth in ESG investments driven primarily by client demand, particularly among the young wealthy. That growth is being facilitated by wealth management firms more than asset managers, as the latter group eyes opportunities to shore up client relationships.
Yet even as the number of ways to add sustainable investments increase, an educational gap has been hindering adoption, according to Cerulli.
“The ability to invest according to personal values needs to be reframed as a positive in client conversations, rather than a perceived detriment to performance,” the research firm says.
For its part, UBS has acknowledged it can do more to help advisors identify the utility in talking about this topic with clients. The wirehouse held its first educational forum on the topic for U.S. advisors in April.
“I see this a category that has been sold rather than bought because of the confusion around the terminology and the alphabet soup the industry has created,” Aurora says. “So the role of the advisor in demystifying is key.”
The U.S. market remains underdeveloped relative to its global peers. A mere 12% of U.S. investors have at least 1% of their investable assets in sustainable investments, according to the UBS survey. That’s lower than investors in countries such as Brazil (53%) and Germany (42%), and lower than the overall survey average of 39%.
“It’s kind of surprising that the U.S. is one of the largest wealth management markets in the world but the adoption rate is quite low,” says Andrew Lee, head of Sustainable & Impact Investing at UBS Global Wealth Management.