Values-based conversations key to ESG investing and KYC requirements

Advisors will need to have more values-based conversations with their clients, several speakers at the Responsible Investment Association (RIA) virtual conference suggested.

A panel held Friday discussed how integrating ESG values into know-your-client (KYC) standards will change the way financial advisors conduct their businesses. The Investment Industry Regulatory Organization of Canada (IIROC) released guidelines for KYC and suitability determinations for retail clients in December 2021.

The discussion expanded on the “client’s investment needs and objectives” section of the guidelines, which state that “dealers should provide their clients with the opportunity to express their investment needs and objectives in terms that are meaningful to them.” This can include “investing in accordance with [ESG] criteria or other personal preferences.”

IIROC didn’t include ESG criteria in the first release of the guidance, but added it after a round of comments, said panellist Jennifer Schwartz, vice-president and chief compliance officer with AGF Investments.

“Adding that in there is really saying to clients, ‘What do you want to achieve when investing your money? What do you want to do with your money? And how do you want to align that with your personal values?'” Schwartz said.

For example, a client can say, “I feel strong about investing in minority-owned businesses, or, environmentally, electric vehicles,” Schwartz said. “Personal values are now just a part of the conversation. There’s all these things that come together as part of the KYC practice — balancing [clients’] personal values with financial goals. Now, it’s a fulsome conversation.”

However, panellist Carol Smith, financial advisor with Desjardins Financial Security Independent Network, said that in her experience, clients “seldom bring up” the topic of ESG. “It’s always an educating opportunity for me to actually speak to clients and explain to them about ESG investing and the options that are out there,” she said.

Smith cautioned advisors not to impose their values on clients.

“This is something that the client-focused reforms (CFRs) and the whole KYP [requirements discuss],” she said. “We document the information about the products we recommend to clients — and this is something good advisors are probably doing anyways. Ultimately, it’s very important for us to make sure that the values we hold as individuals, [that] they’re our values.”

Schwartz said having more values-based conversations can lead advisors to a more holistic understanding of their clients.

“The more these conversations happen and the education happens, and you’re really explaining what this means to a client, clients can have really important conversations about how [their] personal values impact [their] other goals,” she said.

Also on the panel was Ian Robertson, portfolio manager, director and vice-president with Odlum Brown Ltd. The panel was moderated by Katie Keir, research and special projects editor with Investment Executive and Advisor’s Edge.

Disclosure: Advisor’s Edge was a media partner for this event.