Financial advisers are becoming more knowledgeable and confident about discussing sustainable investing with clients, but reporting remains an issue, according to the latest Sustainable Investing Tracker Study from NextWealth.
Just over half (57%) of financial advice professionals said they were confident or very confident recommending sustainable solutions to clients, up from 54% in April 2022. Whereas only 45% of financial advice professionals said they were confident or very confident reporting against clients’ sustainability objectives.
Adviser’s confidence in their processes to support sustainable solutions
Heather Hopkins, Managing Director of NextWealth comments: “At the start of 2022 we saw a sharp drop in adviser confidence on all sustainable investing processes. The most recent results show a slight improvement, suggesting advisers are getting more comfortable with the category. We think this might be a case of the Dunning-Kruger effect, where confidence is falsely high at the start, drops off with a realisation that more needs to be understood and gradually lifts as knowledge and expertise grows.”
While confidence about managing clients’ investments is strong, when it comes to reporting the level of confidence dips, with a greater percentage saying they are only ‘somewhat confident’ or ‘not confident at all’.
While the proportion of advisers who report the sustainability of investments to clients has increased by 9% to 59%, most only report for those clients who request it. The most common method of reporting sustainability is for an adviser to pass on an externally generated metric to the client.
Heather Hopkins comments: “There is a clear opportunity for businesses that can help advisers with their sustainable information gathering and reporting but it’s unlikely that an ideal solution is around the corner. To achieve streamlined reporting requires consistent data standards and these do not exist at the current time. Some advisers we spoke to said there needs to be an industry-wide campaign to get reporting data to align because individual firms are doing their own thing and this is adding to the problem.”
Investment choices
The most used strategies for sustainable investing are multi-asset funds, in-house built portfolios and DFM for model portfolios. Advisers who use bespoke DFM feel most confident when recommending sustainable products to clients.
The core-satellite approach remains the dominant strategy used by two thirds of advisers. Full integration of sustainable investing criteria is the approach taken by one fifth of advisers.
The report is the fifth in a series of NextWealth reports that tracks sustainable investing relating to the financial advice profession. Other findings include:
- Assets invested in sustainable funds are rising but adviser reluctance to have meaningful conversations with clients could be repressing faster uptake.
- The number of advised clients with investments in sustainable funds and portfolios rose to 22% in August 2022, from 18% in April 2022.
- Younger advisers (under 45) on average have a larger share of client assets in sustainable funds or portfolios.
The full Sustainable Investing Tracker Study is available to download free from the NextWealth website, thanks to the support of sponsors abrdn, Aegon, Aviva Investors, FE FundInfo, Fidelity International, Iress, JP Morgan, M&G, Parmenion, Pictet and Schroders.
