Please Note: OpenInvest was acquired by J.P. Morgan on August 5, 2021. Articles and insights posted before this date, only reflect views, information, services as of the date indicated. Information should not be fully relied on as current/accurate information and is subject to change without notice.

How to Talk to Your Clients About ESG

Published on

February 9, 2021

As the Director of Account Management at OpenInvest, I often hear from advisors that they are unsure of how to approach their clients about ESG. They don’t know how to bring it up naturally in conversation, or they don’t know how to answer the most common objections that clients raise. I find that there are usually three buckets of clients into which most clients fall, and there are different ways to approach each bucket.

The three buckets of clients are:

  1. The ESG Loyalists
  2. The Uncertains
  3. The Financially Focused

The ESG Loyalists

The ESG Loyalists are your easiest clients to speak to about ESG. These are the individuals that have already indicated their interest in ESG to you or are already invested in ESG in their existing portfolios. For the former group, you can introduce OpenInvest easily as an ESG solution that they did not have access to previously through your firm. For the latter group, moving to OpenInvest will allow a higher level of customization for their values through direct indexing that ETFs and mutual funds don’t offer.

Clients will be able to include their favorite stocks or exclude others, as well as overweight stocks that align with values they care about. Plus, since clients will be owning individual stocks with an OpenInvest account, they will be able to vote on proxies in a values-aligned way, which they are not able to do with funds. OpenInvest also has exclusive causes that currently do not have a fund solution in the market, such as our Prison Industrial Complex cause.

The Uncertains

The Uncertains are the clients that may have indicated minor interest in ESG, or are just clients that you are unsure about. There are a few tools that can help you assess clients’ interest levels.

One way is to announce the introduction of an ESG product to your clientbase through an email newsblast or other form of marketing communication. Another way is to send a simple survey to your clients to gauge their ESG interest, prompting a follow-up call from you. If you have client meetings or annual reviews coming up, make sure to mention your new ESG offering during the meeting and assess your client’s interest.

Later on this year, OpenInvest is developing an ESG quiz that will help your client navigate their values, as well as a short video that will provide an overview of ESG investing. Some advisors have also found it helpful to integrate ESG as a standalone section to their website. OpenInvest can help you strategize on how to incorporate this information, as well as provide marketing content that you can leverage.

The Financially Focused

These clients generally only care about returns or are reluctant to change their existing strategy because their portfolio has been performing well. One counterpoint is that there is long-term risk to investing in non-ESG stocks, such as climate change and other sustainability risks. And with the new administration, there could be additional opportunity to invest in ESG as regulatory momentum increases and positive ESG sentiment grows.  

A common myth to debunk is that investing in ESG means sacrificing returns. On the contrary, there has been growing evidence that ESG investing will actually lead to better financial performance. For example, an S&P Global study shows that, “Firms with a high gender diversity on their board of directors were more profitable and larger than firms with low gender diversity.” Plus, OpenInvest uses a passive investing strategy, meaning that our portfolios are designed to track the performance of the benchmarks you choose, therefore resulting in neither outperformance or underperformance, but rather, similar performance.

OpenInvest is also cost-efficient - we are cheaper than the expense ratios of most ETFs and mutual funds in the market. And with direct indexing, clients can execute better tax-loss harvesting strategies because of the ability to buy and sell individual stocks.  

Implementing ESG for Your Business

Once you have identified the bucket into which your client falls, you can use the relevant strategies above to address their questions and eventually move them to a solution that aligns with their values. For those who are interested but are wary of a new solution, I recommend allocating a portion of their portfolio to an OpenInvest account so they can review and test the solution. We also see advisors replacing their existing passive sleeves with OpenInvest because of our cost efficiency, along with the other customization and tax-loss harvesting features we offer.

Investment in securities involves the risk of loss. Past performance is no guarantee of future returns. One cannot invest directly in an Index. Any opinions, estimates and forecasts offered in this document constitute judgment as of the date of the materials and are subject to change without notice, as are statements of financial market trends, which are based on current market conditions. We believe the information contained in this document to be reliable but do not warrant its accuracy or completeness. This material is not intended as an offer or solicitation for the purchase or sale of any financial instrument. The views and strategies described may not be suitable for all investors. This material has been prepared for informational purposes only and it is not intended to provide and should not be relied on for investment, accounting, legal or tax advice. OpenInvest may not have verified (and disclaims any obligation to verify) the accuracy or completeness of any information herein that has been provided or obtained by third parties.

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