How to talk to clients about RI

Deciding how — and whether — to discuss responsible investing (RI) with clients can be tricky.

Carol Smith, an advisor with Lévis, Que.-based Desjardins Financial Security Independent Network (DFSIN), has evolved her approach over many years.

“When I first became familiar with RI, I used to bring it up a lot, introduce the concepts and [clients] would make a decision,” Smith said during a June 5 virtual panel hosted by the Responsible Investment Association (RIA) as the kick-off to its 2020 virtual conference.

As Smith’s familiarity with RI matured, she began to incorporate it into her investment approach, rather than highlight it as a niche.

“RI is something I believe in 100% and, wherever possible, I invest my clients in it,” Smith said, adding that analyzing environmental, social and governance (ESG) factors is embedded into her process when she’s choosing products and portfolio managers.

If clients ask for more information on RI, Smith directs them to consumer-facing videos and industry research. The goal, she said, is to help them see “the broad impact that they’ll be having by investing in RI.”

Given the complexity of the RI universe, clients can be overwhelmed if given too much information, said Alicja Brown, an advisor with Remy Brown Investment Group at CIBC Wood Gundy in Edmonton.

“For those who are really interested [in RI], I often say, ‘I could talk about this all day. How much time do you have?'” Brown said.

“I’ll provide as much information as investors like but, ultimately, clients are hiring me because they want to delegate the management of their financial affairs,” she added.

Brown said learning about RI led to a “career shift” for her, but she still focuses on the client first.

“I always bring up the fact that, from an investment management perspective, I use RI,” Brown said. “I don’t advertise myself as, let’s say, a green advisor, but it is something I integrate in all client portfolios.”

Determining how to broach RI with a client depends on the client’s priorities, Smith said.

“If [a client] is someone who comes from an environmentally conscious background and cares about sustainability, we talk about their values,” Smith said. Conversely, if a client is focused more on their financial goals, “I tell them as a bonus that I’m investing responsibly and what that means.”

When starting discussions about RI, advisors may confront client biases and industry myths. While there are “myths of underperformance, of extra costs [and] of [RI] limiting the investible universe,” these myths aren’t valid, Brown said.

“There’s so much robust research that tells us this, so a major takeaway is to check your biases at the door” — especially with so many Canadians wanting to learn about RI, Brown said.

And learning about RI options is becoming easier. Increasingly, ESG factors are being mentioned in the earnings reports of major S&P 500 companies, said Mary Robinson, the RIA’s director of research, policy and collaboration.

“[This] matters because earnings calls are the opportunity for companies to share their stories with the capital market,” Robinson said.

Robinson noted that there were 71 mentions of “ESG” on earnings calls for S&P 500 names in Q4 2019, up from 14 a year earlier and up from only five in the first quarter of 2018. She added that the Covid-19 pandemic has accelerated RI growth, with social issues coming to the forefront.