How to talk to clients about RI

The demand from clients certainly exists. According to 2014 research from Toronto-based Environics Research, 76% of investors want their advisors to be aware of ESG risks and manage their investments accordingly. Furthermore, 84% of investors say they would invest responsibly if their advisor proved there was no performance discount.

Despite this, only 14% of advisors have discussed RI as a strategy with their clients, according to research from Germany-based Allianz Global Investors.

How the industry currently brings up RI has contributed to the gap in its uptake, Rutherford said. Specifically, the industry usually leads with either values or facts.

When an advisor leads with his or her own values, this can cause a potential disconnect with clients, he said. The problem is that clients may not share those values

On the other hand, when it comes to leading with facts, “hitting investors over the head with only your facts discounts what they believe to be true,” Rutherford said.

It’s better, he explained, to turn facts into a conversation addressing your clients’ concerns. Advisors understand that clients are concerned about risk management and opportunities to grow wealth. Some lesser known, but emerging concerns among clients is values alignment and creating impact beyond returns. Advisors can start a conversation about RI around any of these four topics.

Rutherford noted that its always important to take time to understand what the investor truly cares about before starting a conversation — then lead with that emotion.

He described a potential conversation using five key phases: the conversation starter, the thought starter, the emotional trigger, the rational response and the payoff question.

Here’s a step-by-step example of how this framework can encourage a conversation around opportunities to grow wealth:

1. The conversation starter
Let clients understand that you know they need to grow their money and suggest they start looking at unique growth opportunities that align with their needs, Rutherford said. RI has the potential to offer something different in a market filled with commoditized solutions, he said.

2. The thought starter
If the current trend continues, by 2030 the world will need 50% more food, 30% more fresh water and 50% more energy, Rutherford said. Ask clients if they think they can grow wealth by paying attention to companies in this space that are trying to leverage this trend for profit.

3. The emotional trigger
Most people understand that the world is experiencing overpopulation, sea levels are rising and humans need to be more energy efficient, Rutherford said. This information may trigger emotion in your clients. As examples of these global changes, Rutherford cited how climate change has led to storms in Boston and that Johannesburg is experiencing stringent water restrictions.

“You don’t have to be a savvy investor to figure out that if there is a company that is figuring out a way to conserve water that might be an interesting investment for your growth,” he added. “Clearly this is a challenge we’re going to have to deal with on a global scale.”

4. The rational response
Follow up an emotional trigger with a rational response. For instance, Rutherford said you might show a client how certain indices are trending. Specifically, advisors can use charts to explain how water and energy efficiency indexes are trending upward whereas crude oil and coal are trending downward.

“I think companies in [water and energy efficiency] probably have better long-term growth potential as proven in this chart,” he said. And that’s a rational response that will justify how your client is feeling emotionally.

5. The payoff question
The payoff question is to ask your client “does it make sense to expand your horizons and explore new opportunities around innovative companies in burgeoning growth sectors,” Rutherford said.

“As an investor, you’re probably going to say that sounds way more interesting that your average dividend.”