It’s not much of surprise, given all we’ve heard, but the number are interesting nonetheless.
New research from Cerulli Associates found that in 2017, almost half of investor households reported preferring an environmental and socially responsible approach to investing.
It jumps to 64 percent for investors ages 30 to 39 and 67 percent for those under 30.
“In response to growing client demand and demographic trends, asset managers are actively working to develop and launch environmental, social, and governance (ESG) products for client portfolios,” Ed Louis, a senior analyst at Cerulli, said in a statement. “While wealth managers and other providers are developing the tools to support these efforts, advisors and investors are implementing them in portfolios more slowly than intended.”
Several factors have led to slower advisor adoption, the most significant being performance concerns.
“Three-quarters of advisors who do not employ ESG strategies cite fears about negatively impacting performance as at least a moderate factor in their decision, with 35 percent of those advisors saying it is a major factor,” Louis continued. “Additionally, 41 percent of advisors believe that ESG and socially responsible investing (SRI) strategies do not offer necessary performance.”
Asset managers are aware of advisors’ concerns.
When asked about challenges to increasing client demand for ESG strategies, 29 percent of asset managers state that misconceptions about performance are a major challenge, while an additional 68 percent report it is a moderate one.
“Asset managers recognize that increasing advisor adoption is a long-term project and are working diligently to address these concerns. Their efforts are achieving some results, as one-fifth of all advisors are beginning to consider using ESG and SRI strategies.”
Asset managers also understand that the need for continued education extends beyond the advisor and needs to reach end-investors.
“Investors’ lack of familiarity with ESG factors and criteria is the largest challenge that asset managers face in increasing client demand for these strategies, with almost 40 percent naming this issue as a major challenge,” Louis concluded. “Providing advisors with materials that can be used to educate clients about a firm’s approach to ESG is crucial in increasing advisor adoption.”
With more than 20 years serving financial markets, John Sullivan is the former editor-in-chief of Investment Advisor magazine and retirement editor of ThinkAdvisor.com. Sullivan is also the former editor of Boomer Market Advisor and Bank Advisor magazines, and has a background in the insurance and investment industries in addition to his journalism roots.
