Research from Netwealth has highlighted the different attitudes towards responsible investing and how advisers can tailor advice to suit those different attitudes.
The ‘Investing for good’ report segment clients into four categories based on ESG interest: believers, pragmatists, doubters and sceptics.
Netwealth marketing general manager Andrew Braun tells Professional Planner one of Netwealth’s goals has been to help the industry understand the various investor demographics.
“We recognise there’s a lot of change in the industry: demographic change, technology change, investment change, business change… as a result of that we see the role we play is to help advisers understand change better,” Braun says.
Meet the family
Representing 27 per cent of investors, believers (shown in the table below) are straightforward – they believe in socially responsible investing and ESG principles. Despite being believers, they might not already be investors, with only around a third holding any responsible investments, but 100 per cent of them are looking to grow their portfolio.
Pragmatists are the group most likely to be invested in socially responsible investments, but as the name suggests they do so for less enthusiastic reasons. Making up 17 per cent of the investing spectrum, 49 per cent of pragmatists currently hold responsible investments.
“In order to best meet the preferences of pragmatists, focus will need to be held on financial performance alone,” the Netwealth report said.
“While this does not immediately sound like responsible investing, care can be taken to avoid firms engaging in controversial or otherwise socially destructive activities.”
Source: Netwealth
Doubters take it a step further than pragmatists. Although 13 per cent of them invest in socially responsible investments, they are largely not enthusiastic about it. Making up 36 per cent of the spectrum, the research considers them to be in the “middle” and are not necessarily for or against ESG – which means they can be swayed by education.
“Portfolios should be constructed to ensure financial performance and credentials are priorities, which are well supported by research,” the report said.
“To achieve this, a negative screening approach from well-credentialed fund managers that have supported research might be a good place to start.”
Sceptics make up 20 per cent of the population and have no socially responsible investments. Netwealth recommends advisers pay less attention to SRI strategies for this group.
A social and investment trend
Earlier in the year Netwealth released a report that applied similar scrutiny to the established affluent. It was while that research was conducted that the firm uncovered different attitudes towards responsible investing.
“The reason we wanted to know about responsible investing is largely because it’s an investment trend and a social trend that warrants attention,” Braun says.
Braun says each client is ultimately going to be unique, but broadly there are always overlapping similarities for an investor profile.
“Through segmentation models you can create buckets. Once you create buckets you can treat those segments and cater for them. It’s hard to tailor every value proposition for every individual.”
This is not meant to be a cookie cutter approach or shortcut. Braun adds that this allows advisers to better target their value proposition to the appropriate segment.
“The benefit of holistically looking at it this way is it allows you to grow your value proposition in an area,” he says.
“It allows you build out some clear value propositions and marketing strategies.”
