Article December 14, 2022

Fully understanding RI to properly inform your clients

Good practices

The number of environmental, social and governance (ESG) financial products is multiplying, and investors are becoming increasingly interested in them. Still, few advisors offer them unprompted.

ÉducÉpargne recently surveyed a thousand Quebec workers about responsible investing. Among those working with a financial advisor or planner, almost two thirds stated that their provider had never spoken to them about responsible investing (RI). Of those who had, 17% merely mentioned its existence, without providing any details.

“There’s a significant gap between investors’ interest and the number of advisors who bring up the subject proactively.” — Marie-Julie Labelle

In fact, more than half of respondents said they were interested in RI. “There’s a significant gap between investors’ curiosity and the number of advisors who bring up the subject proactively,” noted Marie Justine Labelle, head of responsible investment for Desjardins. “Both the investor and the advisor think that it is up to the other to bring up the subject for discussion.”

She thinks that advisors who don’t bring up the subject are making a mistake. “If they fail to learn about these products or avoid speaking about them to their clients, they are missing interesting possibilities in the market,” she believes. She points out that in Europe, money managers and advisors are obliged to ask their clients about their ESG preferences and to take them into account when evaluating the suitability of their investments. The other aspect advisors need to consider is that they have a professional responsibility to have a good understanding of the products they offer.

IN 2021

Source: Investment Funds report, IFIC, 2021

Educating yourself

To respond to the RI expectations of their clients, good intentions are not enough. Advisors must expand their knowledge about a category of products that is constantly evolving. Desjardins offers in house training on RI, which has been followed by more than 1700 advisors. “We also offer it beyond our networks, explains Marie Justine Labelle. We want to make RI more democratic.”

The Responsible Investment Association (RIA) offers several courses that lead to the title of Responsible Investment Specialist (RIS), Responsible Investment Advisor Certification (RIAC) and Responsible Investment Professional Certification (RIPC). Rebecca Savard, financial security advisor at Lumos services financiers, completed the training leading to the RIS title shortly after having been taken aback by a client who quizzed her on ESG investments.

“I had just finished university and was starting in the field,” she explains. “I really didn’t like feeling that I was unable to answer his question. A week later, I signed up for the RIA course!”

“If there’s some oil or coal in the portfolio, we must indicate this and explain why. Then it’s up to the client to decide, depending on their values.” — Laurie Bossé

She later followed another more advanced course with the Principles for Responsible Investment (PRI) Academy. “I believe that, as advisors, we have a responsibility to grow RI,” she says. “In addition, it can help retain clients, who increasingly want investments aligned with their values.”

Opening up the discussion

She systematically raises RI with all her clients, as does her colleague Laurie Bossé, financial planner with RGP Wealth Management. “It’s important to assess their interest, of course, but also to understand what is it in ESG investments that attracts them. We need to make sure we understand their values, since there are many different products on the market, which vary in their emphasis on environmental, social or governance issues.”

The multiplication of products, and varied approaches followed by their creators, cause confusion in clients. For example, some managers completely exclude all companies in a sector, while others will instead simply choose the best-in-class. This means we can find, for example, so called green funds that contain shares of oil companies, or pipeline manufacturers.

“It’s essential to be transparent with investors, insists Laurie Bossé. If an ESG portfolio contains a bit of oil and coal, we must indicate this and explain why. Then it’s up to clients to decide, depending on their values.”

Lately, accusations of “greenwashing” have harmed the reputation of ESG products. As yet, mandatory and coordinated rules don’t exist to manage the disclosure of company ESG data, nor to evaluate investment products. The market is full of companies that provide ESG scores (MSCI, Morningstar, Bloomberg, etc.), some of which are based on quite different criteria.

“As with any product, you have to watch out for marketing and do your own research in order to make sure you really understand what you are presenting to your clients,” notes Rebecca Savard. “I started with a short list of ESG products that I enlarge year after year.”

She mentions that she has also removed products from her list after an unsatisfactory conversation with the commercial representatives of some manufacturers. “If it isn’t clear, or if they don’t seem to be well trained to explain the product, it rings an alarm bell for me,” she acknowledges. “It destroys my trust in them.”

“As with any product, you have to watch out for marketing and do your own research in order to make sure you really understand what you are presenting to your clients.” — Rebecca Savard

For further information

Investment Funds Report, IFIC, 2021