Investing with purpose

The 2021 EY Global Wealth Research Report examined what investors valued most in their wealth management relationships and how it changes across service models, engagement choices and value-aligned advice. The report showed clients of all ages and levels of wealth want to look beyond purely financial outcomes and returns in an effort to build more purposeful investment portfolios and wealth management relationships.

"Diversity and inclusion is increasingly viewed by wealth clients as both a sustainability goal, a key driver of provider choice and an important factor in building strong advisor relationships.”

Sustainable investing

Both locally and globally, environmental, social and governance (ESG) factors are becoming increasingly important to wealth management clients.

In fact, 76 per cent of global and 72 per cent of Australian respondents believe it is important to consider ESG parameters in their investment portfolios. At the same time, interest in specific ESG themes has increased over the past year. For Australian respondents, climate change and carbon emissions, better worker welfare and human rights, and air and water pollution were the top three ESG issues reported as important to have considered or integrated into future investment portfolios.

Although 76 per cent of Australian respondents have personal sustainability goals, 41 per cent feel their wealth manager falls short in understanding their values. These figures align with the global averages of 78 per cent and 41 per cent respectively. This deficit in understanding is concerning, given the importance of delivering tailored, differentiated experiences to clients.

So it’s not surprising a major reallocation of investments could be on the cards with respondents reporting they plan to increase the use of sustainable investing strategies. Locally, over the next three years, positive screening – or "best in class" selection – is expected to grow 7 percentage points to 20 per cent, thematic investing 9 percentage points to 14 per cent and philanthropy 4 percentage points to 25 per cent.

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Impact investing is also expected to grow 14 per cent by 2024 among Australian respondents, reaching an average adoption level of 43 per cent (significantly higher than the global average of 35 per cent).

The rapidly evolving expectations of clients in this space raise some challenging questions for wealth providers. They may need to consider offering alternative investment or asset types with which they may not have a proven track record, creating a need for new and innovative partnerships with specialist providers.

The good news is ESG investing also creates opportunities for firms to harness superior client insights and build enhanced offerings. Providers could consider using account openings and portfolio reviews to capture and clarify a clients’ ESG investing profiles and then integrate ESG investing experiences into wider sustainability strategies.

Wealth managers should consider offering end-to-end ESG investing journeys underpinned by a broad choice of ESG investing options. Tailored guidance and advice, flexible educational options, supplemental research on important topics and clear accountability that links to their wider sustainability strategies will be key.

D&I in the spotlight

EY’s research also found diversity and inclusion (D&I) is increasingly viewed by wealth clients as both a sustainability goal, a key driver of provider choice and an important factor in building strong advisor relationships.

Currently, 57 per cent of Australian respondents see D&I efforts as important when evaluating a wealth manager (above the global average of 48 per cent). Firms that can better identify and understand the preferences of under-represented clients have an opportunity to strengthen engagement and retention among those groups.

In contrast, firms that fail to demonstrate empathy will struggle to attract new clients and risk losing a significant proportion of existing ones, especially now the wealth of women and other traditionally under-represented groups is growing globally. 

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Wealth managers also need to improve their own D&I performance – partly because it’s an increasingly important driver of attraction and retention for clients and employees but also because diverse teams are better at detecting blind spots, enhancing innovation and identifying investment opportunities.

Progress toward true D&I needs to be visible to clients, especially among advisor teams and at board and executive levels.

The way forward

With more clients than ever now investing for purpose and looking beyond just return on investment, it’s becoming increasingly important for wealth managers to understand and meet their clients’ unique needs.

In this environment, wealth managers who can personalise products and services, enhance and integrate purpose and provide more tailored offerings will become increasingly popular as the demand for more holistic approaches to wealth management rises.

The key to achieving this is through collaboration with other providers, from health insurers to competitors, to deliver an ecosystem for clients and a single view of all their financial services. This will have profound implications for wealth managers’ service models, who will need to decide between becoming a one-stop shop or a specialist provider.

Rita Da Silva is Wealth and Asset Management Leader for EY Oceania