Advisors overestimate their RI knowledge

The spectre of greenwashing and a lack of ESG standards may be the two biggest deterrents for many financial advisors when it comes to initiating responsible investment-related conversations with clients.

However, advisors may also overestimate of their responsible investment knowledge, a new survey suggests.

According to the Responsible Investment Association’s (RIA) latest opinion survey, 81% of Canadian financial advisors expressed concerns about the issue of greenwashing. Seventy-four percent noted concerns about a lack of standards when it comes responsible investing. These concerns “may be preventing them from initiating RI-related conversations” with clients, the survey stated.

These concerns could soon be addressed by regulators. On Wednesday, the Canadian Securities Administrators issued ESG disclosure guidance for investment funds.

Concerns aside, the majority of advisors surveyed (85%) said they were “very” or “somewhat” comfortable starting a conversation about responsible investment, with the remainder (15%) saying they were not comfortable.

Comfort with starting a conversation was higher for advisors who believed they had “excellent” or “very good” knowledge of RI (62% of advisors believed this), and lower for those who said they had “poor” or “very poor” knowledge (6% believed this).

Ninety-four percent of those advisors with strong RI knowledge also said they were confident in starting RI-related discussions, while only 35% of advisors who had weak knowledge said they’re comfortable initiating RI conversations.

The survey showed, however, that advisors may not realize their RI knowledge is lacking.

Despite 94% of respondents rating their RI knowledge as adequate or above, only 6% of respondents received a perfect score on a RI quiz posed in the survey, which asked respondents to identify the number of true statements (answer: three) in a list of 10. More than a quarter of respondents (29%) could only correctly identify one true statement, while 23% didn’t correctly identify any of the true statements.

The RIA noted that, overall, quiz performance was similar regardless of advisors’ self-assessed knowledge levels. “Taken as a whole, these results strongly suggest that some advisors don’t know what they don’t know and may instead be overestimating the state of their RI knowledge,” the RIA stated.

The association reported that as of the end of 2021, more than 2,000 financial professionals had either earned, or were in line to earn, one of its responsible investment credentials.

RIA’s research was conducted by Newcom Media Inc. in September 2021, with 539 financial advisors completing the online survey. The final data was statistically weighted to reflect the geographic distribution of financial advisors across the country. The results are considered accurate to within +/-3.5%, with 90% certainty of what they would be if all financial advisors in Canada were interviewed.

Disclosure: Advisor’s Edge is owned by Newcom Media Inc.