A recent conversation I had with an IFA got me thinking about how discussing sustainable investing with clients can, for some, be like trying to fit a square peg into a round hole.
As professional financial planners, IFAs may not be accustomed to having detailed conversations about the whys and wherefores, the nuts and bolts of a particular investment portfolio and its strategy.
A quick browse through some state of the art IFA websites reveals that, quite rightly, their clients lie at the heart of their branding. The messaging tells a compelling story of how the firm’s advisers help clients achieve their goals, listening to their dreams, helping them to explore possibilities, protect against shocks and minimise their taxes.
There is usually a section focusing on “investments” but its features are typically described in broad-brush terms – referencing risk management, diversification, navigating markets, tailored solutions and, again, minimising taxes.
I have worked for IFA firms where the investment solution is a significant part of introductory and review meetings, and others where its just a matter of checking in on risk and returns and then moving right along to what’s happening with the client. If the client and the adviser are both in a happy place then either option is good.
Where the investment part of the package is taking a back seat in client meetings, it’s often because the advisers prefer to focus on the art of financial planning or financial coaching. To them, the most valuable tool in their kits is giving sound and practical financial advice, applying cash flow modelling, exploring client needs and wants and/or blending tax wrappers and strategies to build and preserve wealth tax efficiently.
The delivery and outcomes of financial planning services are without doubt easier to predict and control than the performance of an investment portfolio, no matter how carefully it is constructed. Financial planning can also all be highly personalised, in order to provide outcomes tailored to the client’s own lifestyle and path to achievement of goals.
When discussing sustainable investing however, the portfolio, the underlying investment strategies and the themes that drive them move centre-stage – the place where the client and the services and outcomes under the IFA’s direct control are supposed to be.
Sustainable investing involves talking about global issues and challenges, not just personal ones. Despite the Financial Conduct Authority’s (FCA) guidance around “sustainable investment preferences”, for the majority of IFA clients sustainable investment will be delivered by a non-bespoke central investment proposition.
While it is possible to explore a client’s personal values and environmental and social concerns in detail, it may not be possible to find an investment solution that perfectly aligns with that.
Instead, we mostly offer the best solutions the industry can offer for that point on the spectrum (between totally unrestricted portfolios and those fully focused on businesses and activities bearing positive impact) where the client feels comfortable.
Exploring solutions
The challenge then is how to have conversations about sustainability with clients without this seeming out of sync with the usual focus on everything personal, everything focusing on the client’s tiny part of the world – their home, their work, their friends and the places they frequent.
One solution could be to provide neutral, educational material to the client about portfolio choices in advance of an adviser meeting, with some pre-prepared questions to test the client’s response.
In this way, the adviser is listening again to the client’s views and preferences and making that their focus.
Alternatively, the exploratory meeting could focus completely on the client with agreement obtained to explore investment strategies on a separate occasion. This exploration could be done virtually if preferred and could possibly be delivered by another member of the adviser team.
It may, of course, become ever more obvious to advisers and clients that their personal worlds are irretrievably moulded by global trends. Issues linked to sustainability are after all being increasingly thrust into people’s everyday lives:
- Should the imminent new car purchase be electric?
- Is gas central heating a positive for the new property?
- Is a holiday in California or Australia too much at risk of extreme weather disruption?
- How do increasing temperatures affect my working conditions?
As a result, investing sustainably no longer needs to be pitched as “doing good for people and planet”, it can very much be about investing in the client’s own personal piece of the world.
