While values-aligned investing that incorporates environmental, social, and governance (ESG) factors has arguably become one of the most discussed financial topics among the largest asset managers, institutions, corporations, and clients in the country, some financial advisors cite a similar reason for choosing not to discuss with clients the role of personal values in portfolio construction:
“My clients aren’t asking for it.”
Most successful advisors understand that client relationships often suffer when advisors take a reactive rather than proactive approach to professional engagement. Clients naturally rely on the expertise of advisors to guide the direction of all aspects of their financial planning and investment strategies. An advisor, for example, wouldn’t want to wait for a client to ask about the implications of the latest tax laws on the financial plan. Meanwhile, some advisors continue to perceive the ESG conversation as falling outside the boundaries of their professional job description. And yet advisors often recognize that personal values not only help to define almost every aspect of a client’s life but have significant implications for the client’s financial plan, like:
• How clients choose to fund children’s education,
• How clients want to protect future generations through insurance,
• How clients choose to organize an estate plan,
• How clients think about creating a legacy through charitable planning, and
• What careers or businesses clients choose or build that provide the wealth in the first place.
So why should the other pillar of planning—asset management—take an approach exclusive of these values?
By understanding the things that are even more important to a client’s long-term well-being than things like tax law changes, advisors are better equipped to not just deliver a more effective financial plan but to dramatically strengthen the advisor-client relationship. Otherwise, advisors should consider the unintended consequences that avoiding discussions on personal values—and how those values can help define investment approaches—can have on client relationships and practices.
Rather than thinking about what clients are not asking advisors, advisors should be thinking about what clients are asking themselves about their advisors. The quality of any advisor-client relationship can hinge on a critical question that clients often ask themselves:
“Do I really matter to my advisor or am I just a line item on a list of bigger and better clients?”
Assuming advisors can provide some level of comfort on this issue, clients then ask themselves the next logical question:
“Does my advisor really understand what’s important to me.”
Without engagement on personal values, clients are then left to wonder:
Is my advisor up to speed with what’s happening in his or her own industry?
Is he or she really the expert I believed?
Advisors have every opportunity to proactively address these fundamentally important—and inevitably asked—questions that ultimately define a client’s satisfaction with the professional relationship. If for no other reason, the choice to engage first on prevalent industry themes like ESG can help advisors avoid the unintended costs of reactive engagement.
As Ken Haman from the AB Advisor Institute explains:
“One of the things I’m very concerned about for many practitioners is that you assume that if the client began to become interested in this, that they would bring it to you. The fact is, in many cases, the client may assume that if you haven’t brought it up, this is not something you’re familiar with, and this may be sparking a…[search] for an advisor who is more aligned with them.”
Source: Webinar - ESG & Impact Investing: A Powerful New Business Strategy. AllianceBernstein.
This commentary was written by employees of Seeds Investor LLC (“Seeds”), a SEC Registered Investment Adviser, headquartered at 311 W. 43RD Street, New York, NY 10036. Tel. 212-287-7370. The commentary is not intended as specific advice and does not constitute an offer to sell securities. Consult your financial professional before making any investment decision. Seeds is an investment adviser and offers asset management services. Advisory services are only offered to clients or prospective clients where Seeds and its representatives are properly licensed or exempt from licensure.