With excesses of doom and gloom, overwhelming statistics and claims of greenwashing which are centred around ESG and Sustainable Finance nowadays, ESG Accord’s Lee Coates OBE thought it was time for some positive, good news about advising clients on ESG and Sustainability (with just a dash of negativity to keep you focused).
I can’t sugar coat the fact that implementing a robust compliance process for advising on ESG/ SF is hard (first negative), but the rewards are huge (hurrah, first of many positives). A good process removes the random nature of different questions at different times regarding a client’s values, or worse, not even asking at all. A logical and repeatable process will achieve the best client outcomes.
It is no longer acceptable for advisers to assume that clients are not interested in ESG or Sustainable issues if they don’t mention it – such a position is in breach of COBS and PROD rules. Even if most clients are not interested in ESG etc, it is still a requirement to educate and ask all of them via a formal process, record the answers on file and confirm each client’s decision within the suitability letter.
With a robust, repeatable and client friendly advice process in place to gather ESG and Sustainability preferences, advisers will find that the extra work involved pays off very quickly. You can view this in two ways:
Triple benefit
This is about generating benefits, reaping rewards:
- Greater client engagement – talk to clients about their values and they will become far more engaged with the advice process. Being asked about things they care about, discussing them with an adviser who has a clear framework to educate, build the questions and record the answers, is very positive. It is empowering to be actively involved in the advice process, rather than, perhaps, feel that a lot of the conversation is happening around them.
- With greater client engagement there is potential for better quality business. Advice is more appropriate to a client’s needs, circumstances and preferences. Plus, know your client (KYC) requirements will be met.
- Finally, in my 30 year experience as an adviser I found that once a client was engaged and had the opportunity to express their values, they wanted to let similarly minded friends and family know about the process. They will want to let people know about their adviser who discussed their values with them.
Triple defence
This is about how discussing a client’s values relate to protecting, as much as possible, the adviser and the firm from any future problems or complaints. The ‘compensation culture’ is prevalent nowadays, so this means all firms need to ensure that the Is and Ts have been dotted and crossed in all areas. By building client education and ESG/Sustainable values questions into the advice process, firms will create a triple defence:
- From the compliance officer’s point of view, when advisers have been trained to discuss ESG/Sustainable values with clients, and they know why it is important, the client experience is consistent.
- With a robust and repeatable process in place, the quality of information gathered and placed on the client’s file is increased. When all advisers are following the same process, rather than some asking values questions and some not, the process becomes fair. The firm will meet its TCF obligations and, critically, will be ahead of the game in relation to the forthcoming Consumer Duty rules (30/4/2023).
- Management reporting and oversight is improved, assisting with the inevitable increased reporting required by the regulator and PI insurers.
Our compliance framework
ESG Accord supports advice firms to build a strong compliance process around ESG and Sustainable Finance. To help advisers deal with the “where do I start?” and “am I asking enough?” questions, we have built a comprehensive ESG/Sustainable compliance process that can be plugged in to their existing, broader compliance process. From a regulatory perspective the process is joined up; our framework helps you determine each client’s objectives and preferences and our Due Diligence support helps you match the most appropriate MPS/ funds to each client’s ESG & Sustainability objectives and preferences. The individual elements can easily be incorporated into large or small advice firms.
An offer of help
For readers of IFA Magazine, we are offering a free (normally £100) Gap Analysis of your existing compliance process. This looks at your documentation and processes from an ESG/Sustainable preferences perspective and will give you some guidance on any changes that might be needed to meet current COBS and PROD rules. To register for your free Gap Analysis, please email admin@ esgaccord.co.uk, with “IFA Magazine Gap Analysis” in the Subject box.
About ESG Accord
ESG Accord provides a packaged compliance framework to firms so enable them to handle all ESG & Sustainability preference outcomes. This will increase your firm’s suitability outcomes, fund strategies will genuinely meet client needs and you’ll be meeting your PROD requirements as a distributor. Trust and transparency are increased, and the client is more engaged. For more information contact: lee@esgaccord.co.uk
