From recycling to reducing single-use plastic, being ‘green’, eco-friendly and ethical has become part of our social fabric – and it has weaved itself into the world of investing, too. If you consider what the average investor was concerned with a few years ago, it probably wouldn’t have included things such as the plastic life-cycle and climate change. But ethics and sustainability are now important factors that people think about when making financial investments.
Post RDR, it’s no longer about pushing products in exchange for commission. Today, people want to work with advisers who really understand them, their goals and also their values – which is why ethical investing is moving into the mainstream. Of course, people still want to make money – but in today’s world, they want to feel good while they’re doing it. So how can you embrace the trend for ethical and sustainable investing and continue to win new clients? Read on to find out.
What is ethical and sustainable investing?
The term ‘ethical investing’ is a fairly loose one. Broadly speaking, it means that investors have another goal besides a return on their investments: they also want their money to do good (or at least, to do as little harm as possible). Ethical and sustainable investing, or socially responsible investing as it is also known, is essentially the process of incorporating environmental, social and governance factors (ESG) into investment decisions. It enables individuals to select investments based on values and personal priorities, ranging from ‘do no harm’ investments to creating positive environmental investments.
Ethical investing statistics
There is approximately £17 billion invested in ethical funds in the UK. 78% of investors say ethical investing is more important to them now than it was five years ago, whilst almost two-thirds of people have increased their investment in sustainable funds over the past five years. Sustainable investments have also grown 107.4% annually since 2012 and they currently account for 18% of assets under management.
What’s more, millennials are nearly twice as likely to invest in companies or funds that target specific social or environmental outcomes, with more than half of millennials saying they always or often invest in sustainable funds and nearly a third of investors in their 20s and 30s looking for financial advisers that provide value-based investing. And when it comes to the role of advisers, a MORI poll found that 65% of people thought their advisers should lead the way and ask people whether or not they are interested in investing ethically.
Attracting ethical investors
So, if financial advisers want to future-proof their firms, it’s vital that they are able to meet the needs and demands of the investors of tomorrow. The fact is that advisers could end up losing clients if they fail to advise on environmental, social and governance-related funds and investment products. Here’s how you can appeal to ethical investors:
- Listen to your clients
Want to find out if your clients are interested in ethical investing? Just ask! Sit with your clients and take the time to get to know what they want to achieve and why. By getting to know them and the values that are important to them, you can develop a strong relationship and build trust: fact find and ask them if they have any social, ethical or environmental issues that they would like taken into account when deciding on investments. You’re the expert here and the one who knows the ins and outs of ethical and socially responsible investing – and it’s your duty to notify your clients about what options are available t
- Make sure you know your stuff
You want to add value to your clients, so once you’ve confirmed that they are interested in exploring ethical investments, you need to sit down with them and run through all the different options available to them. This should be based on thorough research and analysis, from cash flow modelling to investment opportunities, and you should also highlight the benefits and risks involved with each investment so they have a clear picture of what their options are when it comes to ethical and sustainable investing.
If you are preparing to advise your clients on ethical and sustainable investing, you could consider joining a trade body and signing up to an information subscription service to make sure you’re in the know about all things ethical investing. The UK Social Investment Forum represents the interests of financial advisers, fund managers and banks specialising in ethical investment, whereas its sister group, the Ethical Investment Association is for IFAs only – and the Ethical Investment Research Service has lots of information too.
- Appeal to millennials
Millennial and Gen Z money will fuel the future of financial firms. In fact, younger generations are poised to receive more than $30 trillion of inheritable wealth – so if you want to get ahead, you need to be able to relate to the needs of young people. According to a study by EY, when assets change generations, firms lose a staggering 70% to 80% of those assets, so it’s essential to make sure you appeal to millennial investors – and the demand for ethical and sustainable investing is being very much driven by millennials who prefer to invest in alignment with personal values.
84% of millennials say investing with a focus on ESG impact is a central goal and they are less likely to put their ethics to one side in pursuit of financial growth, whilst two-thirds of millennials are concerned by the state of the world and feel obliged to change something. So if you provide millennials with value-based investment options, you will put your firm in a strong position against competitors to attract and retain younger investors. Want to find out more about how to appeal to millennial investors? Check out this blog.
- Practice what you preach
It’s not enough just to offer ethical and sustainable investing options – if firms want to get ahead, it’s important to practice what you preach and adopt socially responsible practices as well. That means company culture, processes, technology and training programmes all need to align with sustainable investing too. This must start at the executive level – after all, employees will always look to their leaders to lead by example. Companies must also train their advisers on how to have targeted and effective conversations with clients around ethical and sustainable investing. And, finally, if your firm’s ethical investing initiatives are to be authentic, it’s important to hire people who are passionate about sustainability themselves; which leads us on to our final point…
- Recruit younger advisers
Millennial advisers play a key role in attracting millennial clients. Not only do they understand the digital habits of their peers, but they also speak the same language of younger clients – and most importantly, they share core values around sustainability, ethical investing and corporate social responsibility. In a survey of young advisers, nearly half said they advise clients under the age of 40, with most thinking this is because younger clients prefer advisers who they can relate to.
So, how do you attract the advisers of the future to your firm? Highlight opportunities for personal development, provide tools and training for the future and let them know you value them and their progression. In addition, you should also show them that you share their values: more than half of millennials have ruled out working for an organisation because of its values, whilst 50% would happily take a pay cut to work for a firm that shares their values. For more advice on how to recruit millennial advisers, check out this
If your financial advice firm is going to adapt to a sustainable investment environment, you will need to make changes to the existing culture, technology and processes. Advisers will need to be fully trained and equipped with the tools required to have meaningful discussions around ethical and sustainable investing – and appealing to younger clients and their values is essential, too. Want to find out more about how to prepare your firm for the future? Contact Recruit UK today for expert recruitment advice.