Customer desire for RI info is an opportunity

Consumer lack of knowledge about ethical investing is a huge opportunity for financial advisers, but will require far more nuanced conversations than are currently taking place, says the New Zealand head of the Responsible Investment Association Australasia (RIAA).

Tuesday, November 15th 2022, 4:50PM

by Andrea Malcolm

An RIAA report From Values to Riches 2022, which looked at consumer demand for ethical investing in Aotearoa New Zealand, found that while public awareness of responsible investment (RI) had risen 13% compared to two years ago, most feel they lack independent advice. The report found that 73% of Kiwis expect their money to be invested responsibly, with 80% of women having responsible investment (RI) as a baseline investment issue, and younger generations being more enthusiastic than older age groups.

Presenting to advisers at a Booster Financial Services conference, Dean Hegarty, RIAA executive manager of membership and engagement said while most customers have implicit expectations around RI they don’t overtly state them which is a risk as the majority of people (56%) said they would consider moving their money if they found out their current fund invested in companies that engage in activities inconsistent with their values.

“Kiwis are relatively sceptical of claims made by financial groups such as banks and so turn to advisers as “bringers of trust” and objective information."

“There’s a significant knowledge gap between what investors need to understand about RI and what they know.”

Asked about barriers to investing more money ethically, 43% of respondents said a lack of independent information and another 43% said a lack of time to seek out that information and compare.. As an adviser that presents a huge amount of opportunity.”

He said advisers need to be aware of the demographics of customers. “Millennials are starting to accumulate wealth and are more passionate about responsible investing but have much less idea about what ethical investing is or how it works than older generations so the knowledge gap of your average customer is going to grow over the next ten years.”

Another factor for advisers to consider is that Kiwis are negative screen investors but negative screening is becoming a blunt instrument which RI globally is moving away from. Instead active ownership or stewardship, particularly around anything climate related is becoming more common.

“The reality is we are not going to divest our way out of climate change, we are not going to divest our way out of four million fuel run cars on New Zealand roads today. Active ownership or stewardship is a conversation that people need to become more comfortable with. In a conversation about what a customer doesn’t want in their portfolio; the follow up question should be what outcome are you looking for from your investments? If they say no fossil fuels, ask why they want to exclude those funds? Actually there are organisations producing a lot of fossil fuels right now which are transitioning us into some really effective solutions to the challenges we face. So there are more nuanced conversations than negative screening that we need to start having. The biggest misconception about RI from within the industry is that it’s a black and white thing.”

The RIAA represents 500 organisations in Australia and New Zealand including investment managers, asset managers, financial advice groups, service providers, with$42 trillion under management. According to its Responsible Investment Benchmark Report Aotearoa 2022, New Zealand’s RI market grew by 26% in 2021 and is now half the overall market in terms of capital assets.

”And they are performing well. Coming down the pipeline is a significant amount of legislation that will fundamentally change the way our economy works.

The blowtorch is our climate response. We are at a critical juncture where the legislation is going to transition. Assets that are valuable now are going to become isolated and stranded.”

Tags: RIAA