Talking to Clients: Socially responsible investing

Be Non-Judgemental

Discussing SRI with your clients needn’t be awkward so long as you broach the subject without implying that they are mean or heartless if they are not interested in the subject, or that they are hopeless idealists if they are.

Leave your personal opinion out of the matter, and let them understand that you simply wish to raise the issue, and they’re free to decide if it suitable for them or not.

Include Questions in your KYC

One solution may be to add some basic SRI questions to your Know-Your-Client forms, and make it part of the account opening process. Try to use open ended-phrasing, so that the door is open for more detailed discussion. For example, rather than asking a straightforward “Are you interested in socially responsible investing? Yes or No” try:

Are there any industries you would prefer to avoid for personal or religious reasons, such as tobacco, gambling, alcohol, nuclear or military suppliers?

Are there any particular community groups or industries you would like to support with your investment dollars?

As a shareholder, you have opportunities to ask questions of management and make proposals. Are there any companies you would like to try to influence through shareholder advocacy?

Position SRI as a Value Added

Let the client know that SRI is simply another service you can provide. When discussing risk and volatility, point out that it is possible to include other criteria as well. You might want to try equating SRI screens with bond selection. For example, you may have already agreed not to invest in bonds that are below a BB grade, so you can explain to them that it is equally possible to eliminate investments in certain industries.

Screening Can Vary

If your clients are interested in socially responsible mutual funds, be sure to explain that the screening process may vary from firm to firm.

Some funds may focus specifically on companies that are environmentally friendly, while others may take a wider view.

Examine Holdings in Detail

You may want to discuss the fact that the screening mechanisms are, like any other human endeavour, not always perfect.

Be sure to show clients the actual holdings of the fund to make sure it fits with their idea of “socially responsible.” Several SRI funds invest heavily in the Canadian banks, who may in turn lend money to firms the client would never dream of supporting — some may feel that this is not the sort of social responsibility they had in mind.

Address the Question of Risk

Much depends on the SRI route your client chooses to take. Studies have shown that investing in socially responsible mutual funds, which are widely diversified, has not hindered long-term performance.

On the other hand, investing directly in smaller companies or organizations allows the client greater control over his or her money — but increased concentration may also mean greater risk, especially when smaller firms are involved.

Consider LSIFs

There are also a number of labour sponsored investment funds (LSIFs) which use socially responsible investing criteria. If the client is in a higher tax bracket and prepared to accept the additional risks associated with venture capital, this is another SRI option that’s available to him or her.

Learn More, Get Involved

If you do find that a significant portion of your clients are interest in SRI, you may wish to learn more about the subject either through a continuing education course (such as the one offered by the Canadian Securities Institute), and you may wish to become a member of the Social Investment Organisationyourself.