Better understanding of RI and its benefits starts by changing how we talk about it.
It’s tempting to look at the rapid uptake in Responsible Investing (RI) solutions and conclude we’re doing everything right. RI assets in Canada are growing – now over $2T, up 42% the past two years. RI-focused mutual fund assets are up 34% and have grown to over $11B. And RI now represents just over half of the Canadian investment industry – up from 38% two years ago. This is just some of the exceptionally good news you can find in the latest RI Trends Report.
If we, as RI practitioners, all sat back and did nothing, it seems the RI wave would continue to grow. But sitting passively by is not in our nature or interest. And it’s a good thing, too. Because for all the success we’ve witnessed around the adoption of RI, the persistent challenges to more widespread adoption – the perception of underperformance, for example – remain squarely in our path. Until we find a way to resolve those challenges we will not reach RI’s true potential.
So how do take RI to the next level?
Let’s start by looking at the difference between institutional and retail channels in the adoption of RI. In the institutional space, which typical leads the retail trend, RI is humming along nicely. Institutional investors appear unmoved by the RI performance myth. In fact, the RI Trends Report survey found that the managers of pensions and institutional money favour RI for its risk benefits, return potential and overall fiduciary duty.
In the retail space, the growth trend has also been strong, albeit from a lower base. What’s concerning here though is the apparent disconnect between retail investors (who have made it clear they not only support companies that consider ESG factors in their operations, but also fully expect their advisors to incorporate ESG considerations into their investment portfolios), and their advisors. According Allianz Global Investors, only 14% of advisors proactively introduce RI into their client conversations.
When asked about the reluctance to incorporate RI into their practices, advisors trot out the usual suspects: performance concerns, lack of solution breadth and the assumption that since their clients aren’t asking for RI specifically, there must be a lack of interest. We know all this to be patently untrue. And though we’ve banged our heads against the wall for years trying to overturn these perceptions with clear, seemingly irrefutable evidence, it doesn’t seem to matter.
There may, however, be another reason for the reticence, one we hear with increasing frequency. Despite the obvious potential for business growth many advisors tell us they don’t introduce RI because they simply don’t know how to talk about it. And why is that? It might be because we, the providers and promoters of RI solutions, aren’t helping them.
It all comes down to how we talk about it. Typically, we position RI one of two ways: we either lead with our values and present RI as the “right thing to do”. Or we lead with facts and argue that RI is a better way to invest. Both approaches have the potential to inhibit rather than enhance adoption.
When we lead with values, we’re asking an advisor or investor to believe in the same things we do. What are the odds of that? Like people everywhere, advisors and investors come to the table with deeply ingrained beliefs. And if those beliefs are not aligned with the values of RI, there is little chance of changing them – at least in the short term.
When we lead with the facts of RI, we run the potential for even greater disassociation. RI performance data may resonate in the institutional world, but if many retail advisors truly believe RI underperforms, hitting them over the head with our facts is unlikely to change their minds. Advisors who have invested successfully for their clients (and after the bull run we’ve had that’s probably everyone) are unlikely to respond well to the message that they’re doing it all wrong.
So what to do?
The solution to this dilemma lies in how we frame the RI conversation. Instead of talking about what RI is, or how it works, wouldn’t it better to open the conversation with a discussion of what RI can actually do for investors? Talking about RI this way addresses what matters most – meeting investor needs.
A needs-based conversation puts advisors on much more solid ground when discussing RI as well. What advisor hasn’t, for example, talked to investors about the need to manage risk? Or uncover new opportunities for growth? These are universal needs that can be met in very distinct ways through RI solutions. There are also burgeoning investor needs such as the desire to make a positive impact beyond investment returns that only RI solutions can meet.
Framing the conversation in a manner that puts the client’s needs first also sets the advisor up to demonstrate real value, a critical consideration in a post-CRM2 world.
Ultimately, the key to making that big RI breakthrough we all want is about making the right connection with our audience. We’ve achieved a significant degree of success talking about RI the way we always have. Is that enough to keep RI growing? Or could changing the conversation lead to greater adoption?
By reframing our discussions around the spectrum of needs that RI solutions are uniquely structured to meet, we’ll make it easier for advisors to talk about RI and stand a much better chance of having both advisors and investors overcome the perceptions that currently prevent more widespread adoption.