Praemium Advice Leaders
How to talk to your clients about ESG
Dive in with Invesco's expert, Jacquelyn Mann, as we navigate the intricate nuances of ESG investing communication. Ever felt a disconnect when discussing ESG with clients? Jacqueline sheds light on the linguistic barriers and offers crystal-clear alternatives to better connect with your clients. Discover startling insights about high net worth investors' ESG preferences and gain actionable strategies to make your conversations truly resonate. This episode is designed for advisors eager to elevate their client interactions and champion responsible investment decisions. Don't miss out on this enlightening journey to optimize your ESG discussions!
Dive in with Invesco's expert, Jacquelyn Mann, as we navigate the intricate nuances of ESG investing communication. Ever felt a disconnect when discussing ESG with clients? Jacqueline sheds light on the linguistic barriers and offers crystal-clear alternatives to better connect with your clients. Discover startling insights about high net worth investors' ESG preferences and gain actionable strategies to make your conversations truly resonate. This episode is designed for advisors eager to elevate their client interactions and champion responsible investment decisions. Don't miss out on this enlightening journey to optimize your ESG discussions!
Hi and thanks for joining us for Premium's podcast series. I'm Matt Van Dyke, general Manager for Queensland and the Northern Territory with Premium, and joining me today is Jacqueline Mann. Jacqueline is the National Manager from VSCO Global Consulting and she does a great job helping advisors to not only acquire and retain clients but also look at expanding their businesses. Jacquie has over 10 years experience working with advisors, really helping to change the client experience and uncover pain points that offer valuable insights and actionable strategies. She is a sought after keynote speaker at conferences and industry events all around Australia. Jacquie, we're absolutely delighted to have you here with us this morning. Thanks for coming along.
Speaker 2:Thank you, it's lovely to be here. Thanks for making the trip down to Melbourne.
Speaker 1:It is great to be here. It is almost as warm as Brisbane.
Speaker 2:In the middle of the night.
Speaker 1:We're going to be focusing on today and having a really good chat. We had the pleasure of having a bit of a phone conversation before getting together for this recording is really exploring some of the concepts, thoughts and ideas where advisors and clients are talking to each other around ES and G, investing environmental, social and corporate governance attitudes. I've seen some of the research that VSCO Global Consulting has done and what we're seeing out of that is a lot of advisors are acknowledging the challenges and difficulties of actually broaching it with clients, Yet clients are saying it's becoming increasingly more important for them. What were some of the real key findings out of the research that you found? That were quite interesting points that were being raised by both sides of that equation.
Speaker 2:Yeah, we definitely knew it was a topic we wanted to look into. There's so much going on at the moment around ESG. There are so many surveys out there. People are hyper aware of the topics in our industry. People are very aware of the topic.
Speaker 2:Nobody was looking into how to actually approach a conversation about ESG with an end investor and that's what we do best. So we have done 23 global research studies on the language that advice professionals use with their clients and it's really to help advisors have a better connection and relationship with their clients using conversational language and methods that really help the end investor understand what they're discussing. So when we thought about looking into ESG, there are so many data points and facts out there about the technical aspect of ESG. There's so much out there to educate financial professionals on exactly what it is and how to implement that into their clients' investments and portfolios. But again, no one was looking into the language used and the end investor's emotional response when it comes to that language.
Speaker 2:So when we work with advisors on a daily basis, I'm out there coaching advisors in their practices or delivering presentations to large groups of financial professionals and you hear while you're out there that they are having large challenge with how to actually bring up, how to raise the topic, and there's a couple of things to think about there. So then, when we look at the other data points we get from investors who are actually interested in learning more about ESG and aligning their values with their investments. The numbers are huge when it comes to an investor wanting to know more, but, as I was saying, nobody wants to discuss it. So we see that there's a gap there and that's what we need to solve for. Well, how do we actually bridge that gap so that an advice professional and their clients are on the same page and the advisor feels confident in bringing up this topic?
Speaker 1:It's what you're absolutely right. It's one really interesting thing where, if I look at all the conversations that an advisor leads with their client talking about investments that are appealing to a client's values, morals or ethics, it's the one aspect that they don't raise. They wait for the client to raise with them. And I think about what other part of your financial planning process would you honestly wait for the client to wait to raise with you? You're not going to wait for the client to say, oh, could we talk about risk or could we talk about the return? I need to achieve my goals. Yet talking about ESG seems to be the one that I'm not going to raise it until the client says it first. Is there any reason that you found from the advisors that you were talking to that they were having trouble wanting to initiate the conversation at all?
Speaker 2:Yeah, and you've actually said it, the number one reason that came out. So we interviewed as part of our research. We interview advisors, we sit down, study them, we follow them around when they have their client meetings and sort of get the natural language that they use. So we see what type of conversations they're having and what they're not doing and what they are doing. Then we study and interview the investors as well. Most advisors said to us that they were waiting for their client to bring it up. They also weren't very confident in bringing it up because they didn't know their client's position on the subject. And globally it can be. So we've found, because the research is global, that it is a large sway between age, between political position, between net worth. There are so many different variables on whether people are interested in it, whether they are against it, and advisors were very hesitant to raise the subject with fear of perhaps trying to or with fear of coming across, of persuading their client or putting their own values to their client on that.
Speaker 2:And a perfect example a colleague of mine. He actually works in the US and he works on my team and he was very hands on with the research that we did and he's a neighbor. He was walking past his neighbor one afternoon and did that quick, obligatory hello how are you? What have you been working on? The neighbor's actually very interested in the type of work that my colleague does. And my colleague said to him yeah, we're actually doing an ESG study and just try to reiterate or test whether his neighbor knew what ESG was, because that's a big issue as well, and then left ways, went into their home.
Speaker 2:Later that evening my colleague gets a text message from his neighbor pages long. He's scrolling through pages of text message about his neighbor's thoughts and how he's against ESG and his neighbors, trying to educate or inform my colleague about why this is not great and what his thoughts and feelings are. And it just quickly. That just escalated quickly and the conversation went down the wrong path very quickly, with no intention of that happening. What if you're the advisor and that's your client? And that's what advisors want to avoid and that's why they are so hesitant or many that we've spoken to are so hesitant to actually bring up the topic and then just waiting for their client to, because they don't know they can get to a dead end really quickly.
Speaker 2:Yeah, absolutely yeah. So the biggest thing we wanted to ensure when we did this study was we wanted to find our ultimate goal, for any of the language studies that we do is to find language and phrases that resonate on whatever particular topic it is that we're researching, but that resonate and work well and are favored by everybody, so covered by all of those demographics. So we don't have preferred language for boomers to speak about ESG. We don't have preferred language for millennials. When you're addressing the subject with millennials, we actually need to find language that works with everybody, because that's going to make the advisor's job so much easier when it comes to approaching these conversations.
Speaker 1:Probably less awkward too I guess, if you're trying to flex your language to suit different demographics.
Speaker 1:For anyone who hasn't seen it, jacqueline and Invesco have done a fantastic video. That was, I think, it's sort of Will of the People, if I remember it, and it was some Vox pops that were done where the host, will, would speak to people on the street and ask them if they even knew what ESG was. And that's where I think, when you're talking about the language that people are trying to find, we're really guilty of using a lot of jargon. We love a TLA the idea of just adding more jargon into the conversations where I think things seem to go auri or taking off the path that advisors want to go around.
Speaker 1:Were there any particular ways that you found in your research to introduce the topic of ESG investing to clients? That resonated a bit better than calling it ESG or trying to find some of the particular parts of it? That again might be a hot button topic where the client could actually have an area that they're really passionate about, but you just need to find a way to get there. What were some of the great bits of language that came out of that research?
Speaker 2:There absolutely are ways. We in fact tested 10 different terms to be used, and ESG was one of them, and we had terms like responsible investing, sustainable investing when, really when. So we're all very good in our industry of speaking another language, and that language is what we call Finglish. Okay, we call that financial services English, and I love that too. The problem when we speak Finglish is this is a very natural language. We are using terms and phrases every single day within our industry that are natural to us. We've learned them. We use them with our clients and our peers.
Speaker 1:You're not born with knowledge right no, Most of the time, people understand them.
Speaker 2:What happens, though, is if we use too much jargon with investors, we can lose them, because, at the end of the day, we need to ensure that our clients understand exactly what it is we're discussing, and clients are too polite. They're not going to sit there and say I've got no idea what that means. They'll try and figure it out themselves. They might leave a meeting and agree with you that everything's clear and they've understood, and they'll be on Google trying to figure it out. That's just human instinct. That's natural. The number one thing is to cut out jargon, and in our 23 studies, we are very broad with this subject is that you need to look at common sense investing language to use with clients. So, when we tested 10 different phrases or terms to use instead or with ESG, esg actually came in at around number seven on the list, so it had when we were asking the question what would you like to talk to your advisor about when it comes to aligning your values with your investments and financial goals? And then we had the 10 words. There, esg was bottom. Esg was under 30%. I think it was actually 26% of people prefer to ESG. You look at responsible or sustainable. They came in up at 80% Because it's language that people understand, it's words that they understand and acronyms, on a whole, they don't work.
Speaker 2:Not many people understand acronyms and we are very, very good at using acronyms in our industry. So when it comes to actually approaching the conversation, it think about it of stripping out. So we don't just want to define, so we don't want to actually say environmental is a social is the s. We actually want to use common sense language to allow people to truly understand what the E stands for. So, for instance, we tested a few different phrases with this.
Speaker 2:So we took to the study to investors and said, okay, if we're thinking of the E, for example, we can use a term like what would go in green or fighting climate change. They didn't work. They actually were not favored in our dial technology that we use phrases, so really common sense phrases like E is a company that's lowering its carbon emissions or energy costs. Using really simple language like that was highly favored by investors time and time again. And then, of course, we did the same with the s and the g. So something as simple as saying oh well, why don't we look into companies that take good care of their employees, their terms, that are understood and favored by investors. And that's really what it comes down to when you're breaking down the acronym that we use so heavily across the board.
Speaker 1:I think I probably have to rewire my own thinking to start trying to find other phrases, because then I'm just going to be guilty of perpetrating using jargon through the industry where it might not be appropriate when, again, we're trying to help advisors deliver better outcomes to clients all through the piece. The client research that we've done over a few years and we should have our latest round of this coming out shortly is focusing on particularly high net worth investors and what's driving a lot of their behaviors and attitudes toward investing and what they want from their advisors, and we saw that, out of the sample that we polled, about 64% of high net worth clients were saying that responsible investing for them was either moderately or not really important, but within that group, 7% said absolutely. It is something that we must do and it's really critical to us, and we do see an absolute shift to considering what the underlying assets are when you start to move into charitable investments and philanthropic investing, where, for example, if you had a charity that was against or trying to support gambling recovery, you're probably not going to be investing in stocks that are making their money from gambling. Equally, though, within that same subset of high net worth investors. There are about two thirds of that group that actually felt responsible investing delivered better financial outcomes.
Speaker 1:And I remember from my own post-grad studies there was some great research around that was building and building and building to support a lot of valuation methodologies and classical financial theory around how responsible investment or more sustainable companies or companies with a greater sustainability view should deliver better long-term returns for investors. Has that body of research been sort of growing and filtering through to both not only clients but to advisors? Do you see much uptake in that space yet, or advisors really still struggling to maybe link the two? Because I know there's a few conversations that I've had with families, friends and advisors where they say we like the idea of responsible investing but at what cost?
Speaker 2:We did see a little bit of that when it comes to the conversation. We tested we look into sequencing. So we actually the goal of this body of research for us was how to actually raise the topic. So think of it like an opening conversation with the client. So we did look into well, how do you open this conversation? And performance is important and it's on an investor's mind. So we looked into okay, do we open with performance and let them know? And, as studies have shown, let them know and people do think that they will be getting good or better performance even if they're investing in ESG strategies.
Speaker 2:Or we looked at do we start with defining what ESG is and trying to inform the client and break down the acronym for them?
Speaker 2:And then the third thing we looked into was do we just keep it simple and start this conversation with a really personalized approach?
Speaker 2:And that is by speaking of a client's financial goals and what wins time and time again, no matter what topic it is that you're bringing up so it could be ESG, it could be about another investment strategy or about anything else opening a conversation and discussing a client's financial goals and reiterating those financial goals and then aligning those goals then with what ESG is, then with performance, is what came out on top and what was important to investors.
Speaker 2:We actually found another interesting thing which surprised me is that 70% of investors in our study preferred to talk about their financial goals and performance before they speak about their values and beliefs and aligning those values with investments. So they're still more interested in reaching their goal and speaking about performance before they are in having that in-depth conversation about what their values and beliefs are, and that's something I think a lot of financial professionals are just not sure which way around that conversation should go. So we've actually got this data now saying that you should start with and they're still favoring performance Because, when you think about it, the investor said to us we have this relationship with our financial professional because, at the end of the day, we have a financial goal, we have a personal goal and we need to get there and we're working with our advisor to get there and then our values can come into play and complement that. But at the end of the day, that's why they've got the services of their financial professional.
Speaker 1:And I think that links into sort of. My next comment, and maybe question for you as well, is that there are so many different ways that an advisor can deliver to their client's individual needs, objectives, goals and values when it comes to considering ESG and responsible investing. They might want to screen out certain investments. They might want to go with a manager who focuses purely on their own version of what they think ESG looks like. They might do very specific selection with the client. So, again, to use that charity example I gave you, where you would screen out any stocks that were making money materially from gambling practices for argument's sake.
Speaker 1:So when there's a plethora of different options that an advisor can bring to the table, is there almost a bit of a paralysis through analysis around knowing what they can actually do for the client? Is there any one particular strategy which you've seen through your conversations with advisors tend to work well, or is it really what we just covered off with, where advisors aren't expected to know the answer straightaway? The important thing is to collect the information, find out what ticks and then go and talk to people like you or people like me and say, hey, this is what I'm facing with this client, what are my choices and what are my options as they build up their own library? Is there anything that you've seen particularly work well, or is it a combination or a mix of different strategies?
Speaker 2:And you've said it so well, matt the advisor doesn't know everything, and they should have know everything, and what we've found is their clients don't expect them to know everything. And one of the challenges that we found advisors were facing in this when we're doing the research, was they said that they were again hesitant to have the conversation about ESG with clients because they didn't think they knew enough and their clients expected them to know everything, and that's actually not the case. When it comes to, there are so many tools and things to look into and it's quite, I imagine, just quite a process when it comes to okay, how do we implement this? So we've had the conversation. We realized that my clients interested in looking in different tools that they can use to screen out ESG factors. We actually found that the most simple place to start is in our study. Investors were leaning towards choosing companies that are doing good, so they would align their value and they wanted to find companies.
Speaker 2:They wanted to find high performing companies that were doing the right thing in terms of what their values were, so they'd go for more virtues Instead of looking at screening out, and another interesting thing that we came across was that investors didn't want a burden or a responsibility or obligation, so they're not interested at the start in saying, okay, well, it's up to you. You need to find a company that doesn't. We need to look into companies that don't do this thing, Don't do this, this and this and this. They prefer the conversation to lead. Let's. This is your values and beliefs. We've had some great fact finding questions here. I've been curious. I've asked you lots of questions. Now We've got a good understanding of what your immediate values are. Let's find companies that you can invest in that do this, this and this.
Speaker 1:Yeah, that's really cool.
Speaker 2:It's a really simple way to start with these conversations. And then of course there are screening tools available in the market. So of course you'll get to a stage where you'll screen out certain things. But when it comes down to that conversation with clients, they don't want a burden or responsibility, they want the opportunity.
Speaker 1:It's more focusing on the positive factors around selection and the virtues of finding companies which make them feel good, rather than saying this is what we don't want.
Speaker 1:That's really cool. One of the things that I've always been quite passionate about is the value that advisors can bring to clients in terms of really helping them stay on the financial journey through all the ups and downs that they're going to experience, and that's why I have an advisor, despite my years in the industry. It's why I like my team members to see advisors, because what we're going on and what the advisors are working with their clients is really like a rollercoaster, but they don't have that physical bar locking the clients into that journey, and so there needs to be a great relationship between the advisor and the client so the client doesn't get off at exactly the wrong time. What I'd like to ask with that preamble, I guess, is the research that you've seen when you've spoken to clients is what was the response from clients around to their advisor when the advisor was raising issues like sustainable investing or responsible investing? How did clients actually see that coming from their advisor, and what did it really mean for the relationship?
Speaker 2:It's an interesting thing because we've seen the data, which means that advisors are waiting for clients to bring the topic up. Clients aren't bringing it up, but they want to talk about it. In the numbers, so we see that there's this huge gap there and that leaves an advisor thinking why should I even raise this subject If I don't know for a fact that it's something that my client might be interested in? Why should I raise it? Because that's what's happening now and that's what they're telling us that's happening.
Speaker 2:When we spoke to every participant in our study, we got an overwhelming response and we asked this simple question how would you feel about your advisor if they brought this to you as an option and it's not trying to persuade you?
Speaker 2:So if they raise the topic of ESG and asked whether you would be interested in learning more or considering it and it's not them persuading or dissuading you, it's whether it's just that they're bringing you the choice. And the overwhelming majority of our participants in the study so these investors said that they would feel good if their advisor did that. So we see our numbers 80% of people open to having the conversation and they would feel good about their advisor because their advisor is giving them a choice and it's not a dead end. If they're not interested, they can move on, and the relationship hasn't got any issues there. They feel good because don't they have an amazing person working with them to help them reach their financial goals that they're bringing everything that's out there to the table and seeing whether they're interested or not. So this is why the work that we're doing is to help advisors have a more confident and comfortable conversation with their clients, because there's no harm in doing so when approached in the right way.
Speaker 1:So not really coming with an agenda or a view. It's really, I think it's an important question to raise. How do you feel about it?
Speaker 2:Absolutely Giving them the option, because there's nothing more personal. Consumers love personal service. When a consumer loves a personalised service from a service provider, there is nothing more personal than allowing your client to have a choice and offering them that choice.
Speaker 1:I think that's a really great way to move into some of the key takeaways, then, from the research that you've found. I think to look at summarising some of those points for our listeners today, what would you really see as the main messages from the research that have come through to you?
Speaker 2:The main message and we've just touched on it is that 80% of people open to having the conversation. There is a huge connection opportunity with your clients in having that conversation. So we know that the conversation is not happening as often with boomers, yet they're open to it Female. So, funnily enough, women, with 33%, had had the conversation, so that market's underserved as well. So it's really about creating a better connection relationship with clients by opening the conversation and the other key takeaway sequence is critical when it comes to having these opening discussions about a new topic with the client. You have to get that sequence right and by starting with the highly personalised text of financial goals your clients financial goals then move into giving them the opportunity to align, in this instance, their values with their investing, then close with saying but the choice is yours. I just thought I'd bring it to the table. That's the perfect sequence in having these conversations.
Speaker 1:I guess my last question, to try and wrap things up a little bit, is again supporting what we're seeing and it's a well known and well discussed topic around intergenerational wealth transfer, and the numbers that we tend to see are anywhere, depending on who you ask, somewhere in the vicinity of about $4 to $7 trillion worth of assets passing through from older generations through to younger generations.
Speaker 1:The research that you've undertaken with Investgo Global have you seen a difference in the interest or uptake of having a conversation around responsible investing between, say, millennials and boomers, or even the correct generation to be, gen X? Is there different levels of uptake? Because I think the part that I wonder to is if we're going to see this money moving. We might be coming from a generation that hasn't been potentially as interested in considering where the money's invested to a generation that's probably more aware, has had access to more information than any other generation prior, and they're starting to think about well, hang on, what am I doing? Am I being a force for change with the wealth? And is there so? Is it important, then, for advisors to consider what is my business going to look like and what's my client set going to look like two years from now, five years from now, 10 years from now, if they still want to have a business, and what have I got to do to cater to that particular client demographic? And how does that play out?
Speaker 2:Yeah, we found some. We uncovered some great numbers. I'm going to put the first one to 43%, so that is the average number. So we tested in our study. We broke it down by generation. So we've got our boomers, gen X and millennials. We then did political beliefs, we did the network.
Speaker 2:It's actually one of our highest net worth studies as well. We had more than 40% of participants with over a million US dollars in investable assets. So it's quite a high net worth client base or investor base that we studied. 43% of the average age that we studied had already had a conversation about ESG with their advisor and 79% of that group were open to having a conversation. And not only were they open to having the conversation, they believed it would help their relationship and it would benefit them to have that conversation with their advisor. So that's our average number and we take out the split.
Speaker 2:So when we've segmented this data and we look at our boomers, that number was 13%. So only 13% of boomers had discussed ESG with their advisor. And again we look back to well, how come that is the case. A lot of the time it's the advisors waiting for the client to bring it up. And then we look at 26% of boomers don't know what ESG means. Sorry, 26% of boomers know what ESG means. The rest don't know what it means. So that generation are not going to bring it up when they don't know what it is.
Speaker 1:Don't know, not interested.
Speaker 2:So that was 13%. But then when we looked into and we asked the question of that age group would you be open to having the conversation about ESG? So we've let them know what ESG was. Would you be open to having that conversation about ESG and do you believe it would actually benefit your relationship with your advisor to have that conversation? 70% said yes. There's a very big gap there.
Speaker 2:Now let's talk about the millennials. 80% of millennials had had the conversation about ESG with their advisor and 90% agreed that it would benefit their relationship. So you've got 13% of boomers who've had the conversation and 80% of millennials. There's that huge gap. And when we're talking about the transfer of wealth, there is a huge opportunity there for an advisor to ensure that they're having a conversation about this topic with their boomer clients. Because at the end of the day, imagine if you've got a family and you're sitting around the dinner table and your millennials are talking about ESG and talking about your parents' advisor or anything like that, and finding out that your parents aren't having those conversations. Well, there's a bit of a disconnect there and it's all about if you want best opportunity to work with, if you're working with a boomer client and you want to keep that transfer of wealth within your business and work with the next generation. There's your opportunity. Make sure that your clients are having conversations with you, that their children are having conversations with their advisor.
Speaker 1:I guess that's equally the risk there as well is if you're wanting to have a business that's still profitable after five years or growing and you can afford to again attract and retain the right staff, but not in the right clients, if you're not preparing for that when it's such. I actually wasn't aware that it was such a high amount. I knew it was popular, but I didn't realise that much. I guess the risk is you're going to have clients that are, I've always thought, your best client knows four other people just like them and they're going to be talking amongst their friends and as their advisor. If you're not having that conversation but their friends' advisors are, the danger is you're going to lose a perfectly good client or the ability for them to refer other people to you.
Speaker 1:Because one of the statistics that we came across was that out of all the clients that are new to an advice firm, most of them over 80% aren't actually new to financial advice. They've come from another advisor, so they might be new to your firm. So how do you make sure that you do hang on to those ones that you really want to hang on to, where you're attracting more of what your ideal client looks like, so that's a really interesting statistic, I think I think we're coming very close to running out of time for our podcast this morning. Jacki, I just want to say it's been an absolute delight having you here with us today. It's a topic that's very near and dear to my heart, but thanks for sharing some of the insights and research. It's been a pleasure, thank you.
Speaker 2:My pleasure, thank you.