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Sustainable Investing: Where to Start with Your Clients

Advisors who develop an expertise in sustainable investing can help deepen client connections

Jon Hale, Morningstar Research Services LLC

 

Sustainable investing can offer tremendous opportunity for financial advisors. Interest in the field is growing among investors—particularly investors who are young, female, or more affluent. Research has shown that sustainable investments can perform as well as,  if not better than, conventional investments, and may be especially effective at helping to reduce risk.

Developing an expertise in sustainable investing can help you connect with your clients on a deeper level, potentially leading to greater client satisfaction and retention. Plus, it can help you differentiate your practice and perhaps add additional meaning to your work.

In conjunction with the Money Management Institute, Morningstar, Inc. will be offering online courses on sustainable investing beginning this fall that focus on helping advisors understand the field and how to incorporate sustainability into a practice.

In the meantime, here are some tips to get started as you begin developing your knowledge of sustainable investing:

4 ways to get started with sustainable investing

1.  Get up to speed on the topic. It isn’t hard to find accessible, high-quality reports and overviews of the field. You might start by consulting the Principles for Responsible Investment or US SIF: The Forum for Sustainable Impact Investing. You can find my work on the Morningstar blog, Morningstar.com and on my personal blog. Also, check out what some of your preferred asset managers are saying about the topic. Many asset managers address sustainable investing in some way. Compare what they say and do with the asset managers who focus exclusively on sustainable and impact investing.

2.  Use a description that will connect with your clients. People often use a variety of terms to describe this investing approach: sustainable, ESG, impact, responsible, and so on. It can be confusing. The good news is that these terms are typically used interchangeably. Pick a term that resonates with your clients, then develop an elevator pitch describing what you mean by it. 

I prefer the term “sustainable investing.” It connects with the broader concept of sustainability, which I think is what’s driving so much interest in this type of investing. I define sustainable investing as follows: Sustainable investing is about incorporating environmental, social, and corporate governance (ESG) considerations into investment decisions designed to help generate long-term, competitive financial returns along with positive societal impact.

3. Know where your clients stand on sustainable investing. Some clients may already be knowledgeable about and committed to sustainable investing. For these clients, you’ll likely need to demonstrate an expertise in the field to give them the confidence that you’re the one who can build and monitor an investment program that aligns with their commitment.

Other clients may have a general interest in sustainable investing, but aren’t particularly knowledgeable or even committed to investing that way. They might want your advice about whether to take this investing approach at all. For these clients, you may need to spend more time exploring what’s motivating their interests and educating them about the range of possibilities.

4. Explore your clients’ interest in sustainable investing—even if they aren’t asking. Does your client have the profile of someone who may be interested in sustainable investing? Are they younger or have a lifestyle that suggests a connection to sustainability? Armed with your developing knowledge of the field, you can now explore their interest. In so doing, you can demonstrate that you “get” who they are.

Putting your knowledge of sustainable investing into practice 

An advisor who’s able to help clients interested in sustainability make a difference with their money may help develop a deeper bond. By helping them invest in ways that are meaningful to them, you’re helping give them an identity as an investor and a way to relate to their investments. Such a connection may also help make them better investors, more likely to focus on the long run, and stay the course when markets decline.

If you have an established practice, adding sustainable investing expertise may potentially help you retain assets as your older clients pass money to younger generations.

Still building your practice? Developing an expertise in sustainable investing can help you attract new clients — those who are choosing advisors for the first time, as well as those who are moving away from their parents’ or spouses’ advisors who just don’t “get” them.

Sustainable investing is already entrenched among institutional investors. With nearly $9 trillion in assets in the United States and $23 trillion globally at the start of 2016, it isn’t going away.

Please see below for important disclosure. 

Read Morningstar’s “Sustainable Funds U.S. Landscape Report” to better understand the growing number of sustainable investing choices.

Get My Copy

Important Disclosure

The information, data, analyses and opinions presented herein do not constitute investment advice; are provided solely for informational purposes and therefore are not an offer to buy or sell a security; and are not warranted to be correct, complete or accurate. The opinions expressed are as of the date written and are subject to change without notice. Except as otherwise required by law, Morningstar shall not be responsible for any trading decisions, damages or other losses resulting from, or related to, the information, data, analyses or opinions or their use. The information contained herein is the proprietary property of Morningstar and may not be reproduced, in whole or in part, or used in any manner, without the prior written consent of Morningstar. Investment research is produced and issued by subsidiaries of Morningstar, Inc. including, but not limited to, Morningstar Research Services LLC, registered with and governed by the U.S. Securities and Exchange Commission.

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