Investment industry

How the pandemic and ESG are reshaping client propositions

Alastair Black

Although there’s an increasing regulatory focus on ESG, it’s growing client demand that’s slowly reshaping client propositions to meet sustainability preferences, says Alastair Black, Head of Platform Proposition, and platforms are playing their part too.

Inevitably, the Covid-19 pandemic has been a theme of all the articles I’ve written over the past few months.

The crisis has affected all of us in many different ways. It has also heightened other, more profound, social and environmental issues not least the damage we were doing to the planet before the pandemic hit.

My awareness of the fragility of our environment has only deepened, thanks to my teenage daughters who are continually debating the subject at school and are genuinely concerned about sustainability and the future of our world.

Similar concerns about the future, and the future for their children and grandchildren, are one of the reasons why clients at retirement are just as behind the push for sustainability as the younger generations.

This, along with the ongoing impact of the pandemic, means it’s natural for clients to want to talk about it in their conversations with advisers. They want to help make a difference where they can and to do the right thing. And they care as much about social and governance issues as they do about the environment.

Driven by this ever-growing awareness of Environmental, Social and Governance (ESG) issues, client propositions are slowly being reshaped to meet sustainable investment preferences. And, due in part to the coronavirus crisis, client demand in this area is only going to grow.

The opportunity to give clients a greater sense of wellbeing

I’ve always believed that the greatest value of advice is the sense of wellbeing it gives clients knowing their affairs are under control. And knowing they’re ‘doing good’ with their choice of investments is a natural extension of that sense of wellbeing.

Understanding clients’ hopes and fears, and the goals they want to achieve, is what advisers do really well. So having the opportunity to discuss ethical issues and sustainability preferences in client conversations can help them to engage even more with clients on an emotional level and develop a stronger bond.

And understanding how much sustainability issues are important to each client means advisers can, with fairly limited changes to individual suitability reports, tailor advice to deliver a plan to both meet the client’s needs and for good outcomes.

Majority of advisers are already asking questions around ESG

Advisers don’t need to be experts in sustainability and ESG to hold a conversation with clients on the subject. They just need to be knowledgeable about what ESG is; what it stands for and if clients are concerned about sustainability issues, to ask about the areas they’re particularly worried about.

Most advisers will be aware that EU regulation is in place which requires advisers, as part of the advice process, to ask clients about their ESG preferences. Although the UK hasn’t yet adopted the regulation, the FCA will be looking at it.

I know that many advisers are already asking clients about their sustainability preferences during suitability reviews, with most having done so for a while now. It was one of the findings revealed in a recent survey we carried out among advisers. It’s evidence that advisers are already pulling out more granular details around clients’ concerns to understand their goals better and to deliver more personalised investment solutions for them.

How platforms can support advisers to deliver on ESG

A key insight that was also revealed in our survey highlighted how most advisers would appreciate additional platform functionality to help with delivering sustainable solutions for their clients. Around half of the advisers we asked would like to be able to search for ESG funds easily, compare different ESG solutions across sustainable themes and see the ESG impact of a selected investment solution to illustrate to clients. This evidence highlights how advisers can recognise that there are inconsistencies around how the asset management industry currently measures ESG but, over time, this situation will improve.

And platforms will continue to evolve to cater more for the needs of clients in those areas of ESG they are particularly concerned about. Personalisation and a client-centric service, where sustainable investing can be fully catered for, is the future.

As a platform provider, that’s where our focus is.

We’re continually looking ahead to work out how our platform innovation can develop and deliver sustainability data for advisers to help them manage and more personalise advice for their clients.

For advisers, the important point here is that by continuing to capture clients’ sustainability preferences now, they’re in the best position to take full advantage of the platform developments and capabilities around ESG as they happen, and as the market evolves.

Currently, our platforms enable a multitude of ESG portfolios for clients with access to a full range and base of sustainable funds, to support good outcomes, through our discretionary investment proposition, Separately Managed Accounts (SMA). We also offer Individually Managed Accounts (IMA) on Wrap, a model portfolio-based solution personalised to reflect individual client needs including restrictions which can exclude certain funds from a standard Centralised Investment Proposition (CIP). which may not meet a client’s sustainability preferences.

Continuing to deliver better outcomes for clients

The Covid-19 pandemic and protecting our planet will, more than likely, continue to be themes of articles I write in the future. And clients will continue to want to talk about the coronavirus crisis and wider Environmental, Social and Governance issues in their conversations with advisers so they can help make a difference where they can.

Although there’s increasing regulatory scrutiny around ESG in the UK, it is this client demand that’s reshaping propositions to meet their sustainable investment preferences.

And although the regulation may only be a prompt, it should at least provide more transparency for clients who want to understand more about the ESG part of their investments and more about the different types of ESG investing available.

As always, for platforms, it’s about supporting advisers to deliver better outcomes for clients. And platforms will have a significant role to play in helping advisers meet clients’ individual needs around ESG through delivering more personalised and tailored investment solutions.

For our part, we’re actively exploring opportunities and innovation to further strengthen our platform proposition in this increasingly important area which has only been underlined by the impact of the coronavirus crisis on all our lives.

For more information about the definitions we use for the different types of ESG investing and how to approach clients with questions around sustainability, take a look here.

Or get in touch with your usual Standard Life contact for more information about SMA and IMA or take a look at these web pages:

The value of investments can go down as well as up and your clients could get back less than they paid in.

The views expressed in this blog should not be regarded as financial advice.