Investors want greater clarity from their advisers around what RI means and how it can fit their portfolios.Beau Lark
Mutual fund and ETF investors have yet to wholeheartedly adopt a responsible investing (RI) strategy even as interest is rising. Why? Financial experts are often laggards in this space.
The latest investor survey by the Investment Funds Institute of Canada (IFIC) and Pollara Strategic Insights, released in October, found that only one-quarter of investors learned about RI from their financial adviser, which would have been their preferred source. Even fewer, about 15 per cent, learned about it from their financial institution.
Most investors gained RI knowledge by reading about it online or hearing about it in the news, the study revealed.
When investors received RI information from their advisers, the survey reported that only 15 per cent of mutual fund investors and 19 per cent of ETF investors claimed they got everything they needed. Only about one in 10 investors seeking information about RI said it’s very easy to find.
Canadians have increased awareness and some knowledge about how to invest with environmental, social and governance (ESG) performance in mind. The fact advisers fail to provide information about the topic consistently and thoroughly “is part of the reason for the confusion about responsible investing,” says Lesli Martin, senior vice president with Pollara in Toronto.
The IFIC/Pollara survey noted that only one-fifth of mutual fund investors and one-quarter of ETF investors said their adviser or financial institution had asked them whether they have any interest in RI.
A survey conducted for Franklin Templeton in 2021 by Directions Research identified the top three reasons investors did not hold ESG investments: “I don’t know enough about them,” “I’ve never thought about it,” and “my investment adviser has never discussed it with me.”
Dennis Tew, head of National Sales at Franklin Templeton Canada in Toronto, says ESG came up in every adviser discussion during a cross-country tour earlier this year. And yet, not all advisers have fully embraced the topic.
”Most advisers are still new at it and trying to figure it out. ESG is not integrated in their practices and they take different approaches, such as dealing with it on a one-off basis,” Mr. Tew says.
That’s clear from a 2021 adviser opinion survey by the Responsible Investment Association, which found that while 85 per cent of advisers surveyed were comfortable starting a conversation about ESG investments, their knowledge of the subject was relatively low.
Another reason some advisers and investors have yet to jump on the RI bandwagon is they mistakenly believe they have to give up performance, Mr. Tew says.
There’s a chicken-and-egg phenomenon at play too. While investors want their advisers to share more information about RI, “Advisers will begin to care more about responsible investing when their clients care more,” says Francis D’Andrade, senior vice president and head of sales and marketing at Forstrong Global Asset Management Inc., in Toronto.
Mr. D’Andrade says adviser-investor discussions need greater clarity around what RI is and its effect on a portfolio. When RI emerged, he says the focus was on avoiding sin stocks such as firearms, tobacco, alcohol, gaming and pornography. “The bogeyman was clearly identifiable,” he says.
Today, “ESG is a bigger tent and more nuanced, which makes it harder to define.”
Ms. Martin notes that a high percentage of investors remain uncertain about their RI holdings. Only 18 per cent of mutual funds investors and 27 per cent of ETF investors can positively say they own responsible investments. Around 40 per cent say they don’t, and the rest are not sure.
The majority of Canadians who already own responsible investments are likely to increase the amount of these products in their portfolio over the next few years, the IFIC/Pollara survey found.
With the interest there, Mr. Tew says advisers should be raising ESG in know-your-client conversations and be ready to offer solutions. “ESG is fundamentally important to Canadian investors, even those just learning about it.”