ESG will bring new opportunities for Financial Advisers

by Christian Burgin CPO, Visible Capital

Happy New Year to you all and let’s hope and plan for a very much better smoother year than we had in 2020. – because we all like a bit of certainty/stability in our lives.

Our team at Visible Capital is feeling optimistic, not simply thanks to our sunny natures, but because we believe that the great Return to Normal when it arrives in 2021 will bring with it significant new opportunities for our industry and, in particular, for advisers.

There’s been a seismic shift in people’s attitude to the adoption of technology and their increasing comfort with using it. Early in the pandemic Zoom saw its user numbers jump from 10 million to 200 million as people became comfortable using video communication software to contact and share documents with colleagues and friends and family.

This phenomenon is important for us as an industry as it means Advisers clients are increasingly more likely to embrace the technology we can offer them to digitise/automate laborious processes, onboard them quickly and seamlessly and ultimately create more time for IFAs to build valuable, business-boosting relationships with clients.

And a key part of investing in client relationships is getting to know them -not only  understanding the way they run their lives and finances but appreciating where their hopes and dreams for the future lie. There has never been a more important time to, efficiently, be able to have greater client insight, to allow Advisers to provide the best service possible.

One key regulation coming very fast up the tracks will certainly challenge how well we know our clients and shape our discussions with them over the next months and years.

In March 2021 the government is introducing the new Sustainable Finance Disclosure Regulation (SFDR) with the aim of providing more transparency on sustainability within the financial markets. For Advisers that is going to mean new obligations for product disclosures in relation to their Environmental, Social and Governance (ESG) credentials. Environmental criteria assess how a company performs as a steward of nature, social criteria examine how it manages relationships with employees, suppliers, customers and the communities where it operates and governance scrutinises how a company deals with its leadership, internal controls and shareholders.

For many of your clients, 2021 is likely to be a year when this ESG debate is going to open up. They will have picked up on the regulation from the media and younger investors in particular are perhaps going to be more interested than ever in putting their money where their values are. 2020 has perhaps alerted many of your clients to global issues which may not have been on their radar before or certainly had not impacted their financial decisions.

Terence Moll, Head of Investment Strategy at 7iM says “Until recently, social issues tended not to be taken very seriously but the coronavirus pandemic taught us the opposite. Public health is obviously important to investors, as are issues like labour relations, inequality and poverty.” And he points out that the environment is equally something that people are increasingly concerned about as he believes “controlling fossil fuel emissions, plus biodiversity and pollution” is crucial. “It’s important to consider the impact of your investments on the planet over fifty or a hundred years.”

So the principles of ESG and the regulations that drive it are going to shape some of the conversations and advice that Advisers will be having with clients over the next few months. My feeling is that we are in a better place to be doing this than we were last year. The technology is in place to relieve Advisers and paraplanners of some of the more laborious onboarding and ongoing suitability tasks and many more processes are digitised. SFDR and ESG criteria may seem like a regulatory burden but it may also be an opportunity for Advisers to use relationship-building skills over zoom or Microsoft Teams or even face to face to get to know clients even better and work together through a process of building investment portfolios that meet not only the regulations but chime with your clients’ consciences.