Almost half (42 per cent) of advisers stated they were either neutral or not confident in their ability to accurately measure clients' environmental, social and governance preferences.
According to the Embark Investor Confidence Barometer, which surveyed 251 financial advisers, nearly half (46 per cent) were either neutral or not confident in their ability to invest according to clients' ESG preferences.
Embark said the financial advice industry has work to do to truly understand clients’ ESG needs.
Advisers believe there is a lack of viable ESG options for them to recommend to clients with only about half (53 per cent) of surveyed advisers confident they could provide clients with an adequate range of options from an ESG standpoint, with the remainder either neutral or not confident.
Peter Docherty, chief executive officer of Embark Platform, said: “It’s very possible those who are more likely to embrace ESG are also more likely to seek advice. But advisers carry significant weight in introducing investment concepts to their clients.
“The role of advisers to help guide clients through the complex world of ESG is invaluable.”
The barometer revealed that 45 per cent of surveyed advisers and 53 per cent of female advisers believe their clients would accept a lower financial return if an investment had social or environmental benefits.
This belief was supported by investors themselves, particularly younger investors with a financial adviser.
The barometer surveyed 250 advised consumers with a minimum of £100,000 investable assets, who have a pension and are aged 35-70 and 503 non-advised consumers with a minimum of £100,000 investible assets, who have a pension and are aged 35-70.
It found that 58 per cent of younger advised investors surveyed (35-44) said they would agree to accept a lower financial return if they felt their money was having a positive social or environmental impact, while older investors were less inclined to do so.
Only 30 percent of those 55 or older agreed that they would be prepared to settle for lower returns.
Fewer non-advised investors (32 per cent) said they would accept a lower return, although younger investors were again more likely to do so.
Greg Davies, head of behavioural finance at Oxford Risk, said: “It is striking that 45 per cent of advisers are confident their clients will accept a lower return for ESG, with the same proportion of advised clients saying the same. It should also not come as a surprise – after all most people are willing to accept returns of minus 100 per cent on the wealth they donate to charities.”
The role of a financial adviser
The data found that advised investors are almost twice as confident as non-advised investors that their portfolio is invested in line with their ESG values.
Less than a third (32 per cent) of surveyed non-advised investors agreed their portfolio was invested according to their values, compared to 58 per cent of advised investors.
Meanwhile, 39 per cent of non-advised investors said they were confident they knew where their money was and that it was meeting ESG principles, compared with 60 per cent of advised investors.
Young advisers (18-34) were also most confident in their ability to support clients around ESG.
Davies added: “Advisers clearly have the potential to be very effective in directing investors towards ESG investing. However, they also need help to do this with confidence. Indeed, for many advisers ESG just adds complexity and hassle to an already complex problem.
“For advisers to most effectively open ESG doors they need the technology and tools to be able to accurately profile investor’s ESG preferences, and crucially to connect these preferences directly into tailored ESG-suitable portfolios.”
sonia.rach@ft.com
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