4 steps to add responsible investment to your service offering

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4 mins read

Think responsible investment is just another fad, or something that doesn’t matter to your clients? Then take a moment to consider these statistics.

Consumer researchfor the Responsible Investment Association Australasia (RIAA) found nine out of 10 Australians expect their super and other investments to be invested responsibly.

And over 60% of Australians expect their financial adviser to incorporate their values or consider the societal or environmental implications of investments.

Those numbers are pretty hard to ignore.

RIAA’s CEO, Simon O’Connor, says there’s growing client interest in responsible and ethical investing.

“For advisers, it’s really important not to confuse a lack of questions with a lack of interest. It’s a risk to think clients don’t care about the way their money is invested, as they increasingly expect it to be invested in a way that does no harm.”

Moving to embrace responsible investment also makes financial sense, he notes.

“If you’re not considering it, then you’re possibly missing out on important return drivers and financially material issues.”

A differentiator for your business

Embracing responsible investment also makes business sense, as it creates ‘stickier’ clients.

“It’s a way to distinguish yourself from robo-advice and model portfolios. It leads to a deeper engagement with clients and is a good way to combat fintech,” he says.

New products based on positive themes or sustainability in areas like social housing are attractive to clients.

“They lead to more excitement and deeper engagement with the investments, as clients feel they are contributing to a better society,” says O’Connor.

Responsible investment can also be a risk management tool.

“There is a massive risk if clients discover their adviser hasn’t been doing what they expect. If they see their money being invested contrary to their beliefs, it can lead to negative perceptions,” he notes.

Adding responsible investment advice

Even if you’re convinced about the value of this type of advice, it can be tough to know how to add responsible and ethical financial strategies and products to your service offering.

A good place to start is the RIAA’s Financial Adviser Guide to Responsible Investment2, which aims to demystify the area for advisers. The guide provides information about the top issues consumers care about (like animal cruelty and human rights abuses), together with long-term performance data for these products.

4 steps to get started

1. Do your research

Before engaging with clients, you need to do your homework. Fortunately, there’s a lot of information readily available, much of it embedded into platforms.

“You can access a lot of detailed information through terminals like Bloomberg, specialist research houses and even Yahoo Finance. Advisers need to understand the information that’s out there and be able to use it,” says O’Connor.

2. Develop your approved product list (APL)

Check what investment products are available on your APL.

“Being on the APL is essential to being able to place your client’s money into responsible investment funds. Advisers need to work with their licensee on what is on the APL and if it’s not there, they need to ask questions,” notes O’Connor.

RIAA also has an online tool, Responsible Returns3, that allows you to filter certified products by type, investment approach, inclusions, exclusions, geography and asset class.

3. Ask the right questions

Many advisers claim they don’t get asked about ethical investing. But few clients go to an adviser thinking about their values and ethics, so they fail to raise the issue.

“Don’t wait to be asked. Talk to your clients about what things or industries they don’t want to be invested in,” O’Connor suggests.

“There is a big risk in not asking, as legislation increasingly requires advisers to meet the ‘know your client’ requirement. Those questions should be a core part of the fact-finding process.”

4. Keep up to date

Clients want help to address ethical issues in their investment portfolios. This means you need to be across complex issues like climate change and fossil fuels.

“Stay current, both in terms of products and client expectations, as these are changing rapidly,” says O’Connor.

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Important: This article has been prepared without taking account of the objectives, financial or taxation situation or needs of any particular individual. Before acting on the information, you should consider its appropriateness to your circumstances and if necessary, seek appropriate professional advice. Any information used in this article is for illustrative purposes only. RIAA is an external entity that is not a member of the Commonwealth Bank of Australia Group of Companies (the Group) and the content or any view expressed by RIAA and its employees does not represent an endorsement, recommendation, guarantee or advice in regard to any matter. CBA, nor members of the Group accept any liability for losses or damage arising from any reliance on external parties.