ESG Investing  

How to outsource your clients' ESG requests

  • Describe some of the challenges advisers face over ESG investing
  • Identify the ways in which advisers can outsource this process
  • Explain where this drive towards ESG investing is coming from
CPD
Approx.30min

“They will also have a huge amount of information about the financial products they advise on, as product providers develop clearer and more comprehensive disclosures about their sustainability characteristics.

“Being able to discuss the main approaches to embedding sustainability into products and which of those might be most suitable for their clients, will therefore become a far more prominent part of an adviser’s role.”

How ESG questions are asked is key too, as Ms Boyle points out: “They need to be framed in the right way. It’s important that the client has a neutral space to express their opinions. The adviser’s own feelings on ESG should not intrude.”

With so many other decisions to take on a day-to-day basis, some advisers may therefore choose to outsource decisions on ESG investment. So, what are their options?

Ms Boyle suggests advisers could seek out specialist experience, as she explains: “One option advisers could consider would be to outsource the investment decision-making to someone with ESG expertise, such as a specialist discretionary fund manager, who can offer explanations and help advisers understand client preferences.

“Some clients just want to exclude the worst ‘offenders’ – others want to do things in more depth, through an impact portfolio.

“A DFM can show advisers what’s ‘under the lid’ of all those ESG labels and what they are talking about. ESG can be so nuanced and advisers need to understand if solutions are suitable.”

Clive Selman, head of UK distribution at the international business of Federated Hermes, also points to DFMs as one of the available options: “There are multiple outsourcing options for advisers to choose from, with many market players upskilling in this area to attract this type of client.

“Advisers can direct clients to DFMs who can run model portfolios to the ESG specifications of the client.”

Ratings agencies are another potential source of assistance, says Mr Tayler: “In order to match client preferences to suitable products, advisers may seek the assistance of fund-ratings agencies and risk-profiling tools to help them.

“The rating agencies are already enhancing their ESG tools to meet demand.”

Mr Selman also sees ratings agencies as a possible useful outsourcing option: “Ratings agencies such as Morningstar, Square Mile, FE Fund Info and RSMR provide fund ratings for advisers who want to retain control of their client’s assets and populate off-the-shelf asset allocation models with ESG funds. Such providers also provide off-the-shelf ESG model portfolios.

“In addition, there is the option to allocate to multi-asset portfolios that manage through an ESG lens.”

There are other considerations involved, however, as Mr Tayler suggests: “If advisers choose to use model portfolios or multi-asset products, they will need to understand how these solutions can meet the differing sustainability preferences of clients.”