Canadians like to think of themselves as a socially responsible lot. We recycle, take public transit when possible and worry about climate change. Thus, there is little surprise in learning that Canadians also embrace responsible investments (RI) – at least, when they’re presented with the opportunity to do so.
That’s the main discovery in a recent report from Lévis, Que.-based Desjardins Group’s wealth-management arm, which found that although 72% of Canadians have never heard of RI, 66% would adopt the strategy after learning more about it.
“[Investors] cannot ask for something if they don’t know it exists. So, there’s a huge opportunity for financial advisors to engage investors into a conversation to find out if they’re interested [in RI],” says Rosalie Vendette, a senior advisor who specializes in developing RI strategies in Desjardins’ wealth-management division.
RI also is held back by the perception among some advisors and clients that the strategy generates lower returns – a holdover from the early days of RI, when it was dubbed “ethical” investing and based on the exclusion of certain companies or sectors.
“[RI] is much more developed now and exclusion is the least interesting strategy,” Vendette says. “We prefer to maintain ownership and engage a company in change and use the fact that we are a shareholder to influence the firm into improving its behaviour on the environmental and social issues that it may face.”
Internal Desjardins data show that more than 50% of the firm’s clients will switch to RI when presented with the strategy, Vendette says: “Maybe they will not switch right away, but they will know that their advisor is following the new trend, so they know the advisor is doing a good job.”
Although Canadians in general still are unaware of RI, there has been impressive growth in RI options in recent years. At the end of 2015, Canadians’ “impact investments” – a subset of RI in which investments are made in companies and mutual funds with the intention to generate a measurable, beneficial social and environmental impact – more than doubled to $9.2 billion in assets under management from $4.1 billion two years earlier, according to a new report from the Toronto-based Responsible Investment Association (RIA) released in mid-October.
The recent rise of RI has been accompanied by a corresponding growth in financial products that make introducing the strategy to clients easier for advisors.
A big opportunity
“[RI] represents a tremendous opportunity for advisors,” says Deb Abbey, CEO of the RIA. In particular, she cites a 2014 investor study from Toronto-based NEI Investments, a division of Northwest and Ethical Investments LP, that found just 10% of advisors presented RI products of any kind to their clients, while “92% [of investors] said they would like to have their investments align with their values.”
The NEI report concludes that offering RI represents an opportunity for advisors to differentiate themselves.
The RIA has professionally certified about 100 advisors in RI, and some firms are getting their advisors involved in this area, Abbey adds. “CIBC Wood Gundy is one of [the RIA’s] members and is growing its team in this [category]. Credit unions such as Vancouver City Savings Credit Union and Kindred Credit Union also are certifying many of their advisors [in RI] so that they’re cutting-edge in terms of understanding how they can reduce risk, enhance returns and achieve positive social change for their clients.”
The RIA’s report states that the primary obstacles to increased impact investing include risk concerns, performance worries and a shortage of viable products and/or investment vehicles.
Sucheta Rajagopal, a certified financial planner (CFP) and portfolio manager with Mackie Research Capital Corp. in Toronto, says investors’ desire for RI is real based the reaction she gets following presentations.
“People come up to me and say, ‘Wow, I didn’t know you could do this’,” she says. “They are very excited about [RI].”
Rajagopal, who has been focusing on RI for 20 years, understands the slow adoption of the strategy among advisors.
“[RI] takes time; and just like anything else, there are levels of complexity,” she says. “And, sometimes, [RI] is a little challenging to get into because you get these questions from clients and maybe you don’t have all the answers.”
Rajagopal began offering RI as one of several strategies for clients. “There really was a significant amount of take-up,” she says. “So, I just learned more and more about [RI] organically as more and more of my clients were interested. And as I know more, I get more referrals.”
The reluctance among many advisors to present RI strategies and products is the main “roadblock” to RI’s growth, suggests Ryan Colwell, a CFP with Mississauga, Ont.-based IPC Investment Corp. in Georgetown, Ont.
“I hear this all the time as an advisor who specializes in RI: that some people who do ask about it often are talked out of it,” he says, noting that advisors turning clients away from RI is probably based more on advisors’ lack of comfort with the strategy. “Most advisors have a comfort zone of products that they like to work with. Despite the massive amount of products available, most of us really use only five or 10 fund codes; forget fund companies.”
Colwell’s experience is that 10%-15% of clients will buy RI products “at any cost,” and a similar percentage want nothing to do with them.
The remainder “can really go either way,” he says. “Once they’re educated about [RI] and realize that they don’t have to give up anything, they’re quite happy to support it. But they’re not your typical tree huggers; they’re not out to save the world.”
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