Financial advisors’ adoption of socially-driven investing isn’t keeping pace with client demand, and Fidelity Investments is hoping new technology can narrow the divide.
Although 75% of investors surveyed by Fidelity think it’s important for advisors to include environmental, social, and governance-driven (ESG) investments in their portfolios, fewer than a third of advisors say they are comfortable talking about it, according to a separate survey of Fidelity advisors.
Portfolio construction remains a challenge, as ESG investing often requires advisors do extra work and gather data from multiple sources, says Rick Smyers, the managing director of Fidelity Labs. It can also be difficult to suggest ESG to clients — not everyone has the same values or beliefs on which investments should or should not be in a portfolio.
Fidelity’s new ESG Pro tool reduces these barriers to entry so more advisors can offer ESG, Smyers says.
“There’s an opportunity that advisors are missing to form a deeper relationship with the end client,” Smyers says. “Because we’re trying to make it really easy, we think we have an opportunity to help ESG go mainstream.”
ESG Pro includes a new questionnaire to determine what clients think about ESG factors and which issues are important to them. Their answers generate talking points for the advisor to avoid any negative reactions to controversial topics. For example, while many people sought to remove gun manufacturers from their portfolios in the wake of a mass shooting, suggesting this strategy could offend or anger a client with strong views on gun rights.
“When a client asks [about ESG], that’s great, but if a client doesn’t ask, should the advisor bring it up proactively? Many advisors are doing that, but some were nervous about it because gun rights is a controversial topic in the U.S.,” Smyers says. “If a client is not a fan of that idea, it could generate a negative reaction.”
Beyond client communication, ESG Pro aims to make portfolio construction easier by bringing together proprietary ESG research from Fidelity Institutional Wealth Adviser and a curated menu of mutual funds, ETFs and model portfolios. New reporting capabilities let advisors see traditional performance metrics alongside ESG metrics like carbon footprint or board diversity, Smyers says.
The percentage of clients and assets invested in ESG products is expected to double over the next two years, according to a survey of advisors from Broadridge Financial Solutions. High-net-worth clients are even more likely to increase ESG commitments, says Jag Alexeyev, head of ESG Insights at Broadridge.
How firms support financial advisors in meeting these needs will be critical, he adds.
“Upgrading advisory toolkits, especially model portfolios which increasingly guide allocation decisions, could facilitate adoption,” Alexeyev says.
Advisors who already specialize in ESG investing anticipate an ongoing wave of new technology infrastructure like Fidelity’s ESG Pro to meet this growing client demand.
“The ability to analyze and support strategies is the next phase, so that ESG solutions become more integrated into practices,” says Melissa Joy, president of Pearl Planning. “Soon clients will demand reports on their impact and we’re likely to see a variety of solutions in the coming years.”
Fidelity’s tool seems to be at the forefront of that innovation, Joy says. She especially likes the idea of the values discovery quiz, which can be a resource for working across generations of a high net worth family.
