June 26, 2020

If you’re looking to establish a more engaging connection with clients through responsible investing (RI), start with your strategy for bringing up the subject. Rather than opening the RI conversation with a solution, try taking a few steps back and addressing the purpose behind the product.

The conversation about responsible investing tends to have two sources. One is the asset managers who manufacture RI solutions (like NEI). And the other is investors with a responsibly mindset. When the two meet – most often through an advisor – the conversation is more likely than not to be framed around a mutual fund or other specific product.

This amounts to starting the conversation with your conclusion. It cuts off your opportunity to build your understanding. RI is about much, much more than an investment – especially for investors. It’s undeniable that the demand for RI ultimately must be fulfilled through investment solutions, but to immediately start talking about RI products does a disservice to investors. Understanding why requires knowing how and why the demand for responsible solutions is unique in the investment world.

The prevailing wisdom for years has been that mutual funds are not sold – they are bought. That means investors don’t march into their advisors’ offices with an insatiable need for (for example) global equity funds. Rather, they meet with their advisors to discuss their investment needs, which may include diversified growth potential, to which a global equity mutual fund could be suggested as an appropriate solution.

Responsible investing is different. In the case of RI, investors actually do march into their advisors’ offices looking for responsible solutions. Advisors are becoming increasingly ready and willing to address this new need with a now broad range of responsible solutions. But their rush to products may not be the best thing for investors, or for their businesses.

A narrow focus on RI products accelerates the development of simplified product classification frameworks. Rather than creating the betterment that RI proports to deliver, they enable less discerning investors to put a tick by an RI box. Unfortunately, some of those frameworks are too simplistic and do not account for the nuanced and blended approaches to responsible investing – approaches that ensure they meet the real goals investors want to meet.

So let’s look instead at the true source of RI demand, which isn’t for products at all. Increasingly, consumers are looking to companies to help them empower their purpose. A 2018 OnePulse survey revealed that 88% of consumers in the US and UK looked to the brands they support to help them be “more environmentally friendly and ethical”1. This is called “purpose empowerment.”

Investors, like consumers, reward companies whose behaviours not only align with their values, but can help them live those values, too. And they look to their advisors to help empower that purpose.

Framed in the context of purpose empowerment, RI demands a completely different conversation – one that does not immediately go to a product. Conversations about purpose should inhabit a different plane and be more holistic. They should move beyond simply investment solutions to lifestyle choices, legacy, philanthropy and volunteerism – all essential building blocks of a trusted, long-term advisor/client relationship.

The key for advisors is to have the will, the courage and, most importantly the capability to postpone the product discussion and focus on the holistic need – their investor’s purpose – first.

  1. Survey of 1004 respondents in the US and UK, November 2018 for Futerra by OnePulse