“…Your prime directive is to put the client first. And when you choose to not harness 100% of the features and benefits of your tools, you're basically putting the client second, especially if it's your own comfort.” This was Bill Bachrach on episode 241 of the Financial Adviser Success Podcast with Michael Kitces.

    Part of my role at Paradigm Norton is to take up this challenge. Not only to ask “Are we using our tools effectively?” But “Are they the right tools for us and the way we serve our clients?

    I believe we should be taking our due diligence of tools just as seriously as for platforms. An emerging area of new tools relates to how we engage clients on the topic of ESG/impact investing.

    What do I mean?

    Nomenclature is both a problem to say and a material problem in this space. There are many definitions of ESG and various parties working hard to bring consistency. I don’t plan to add to the noise. Note that it is a potential barrier, so work out what you mean, what you hope to deliver, and make sure you communicate that to your clients.

    How might you approach it?

    One approach that could work is to have a series of open-ended questions that you’ve found to be effective over time.  

    I love this approach for conversations about purpose, values, and goals. However, it can be problematic if you’re trying to be systematic and map the outcomes for interest in ESG/impact. Consider how you would answer if I asked if you would prefer well governed companies over those with poor corporate governance. It’s quite leading.

    Rubbish questions bring rubbish answers, so ask better questions. The best way I know of asking better questions is to start thinking about what you want to know. This is important as clarity on this will help you work out what tools (if any) might be helpful.  

    I think we should apply some of thinking we use for risk profiling. Questions are designed to measure something specific and are tested (and, in some cases, refined over time).  

    I don’t just want to know whether a client is interested. I want to know how best (or how much) they want to engage. Is this something that they want to dig into in depth, or is it just ‘table stakes’ to them? Are there areas they want to hear more (or less) about? How do they feel about any potential trade-offs? As a financial planner I want to know how this fits in with any other things they are doing to effect change in the world such as giving, volunteering, or activism.

    What don’t you want it to tell you?

    I don’t think this question applies to all firms. You might have the ability to build a completely bespoke portfolio from the ground up, matching a client’s personal areas of concerns. If you can do this, then ignore what I’m about to say – ask good questions to become really specific about your client.  

    For many financial planning firms, the investments are simply the engine to enable clients to achieve their objectives. So, you might have a range of portfolios that you’ve found to be suitable for your target market. You’re unlikely to be able to tilt the portfolio to consider a client’s specific views about issues such as alcohol, mining, or a specific UN Sustainable Development Goal. Be careful about asking questions that get down to this level – you may find yourself unable to deliver. Be clear on the intent and limitations of your investment solutions.

    What sort of things are out there?

    Firstly, we have questionnaires that focus on finding out what matters to your client. They often use psychometrics to ensure they are measuring what they intend to and are robust. The output guides further conversation and helps you understand the motivations that you might need to consider. Addressing areas of compromise in portfolio construction is best done up front.

    Another approach aims to give you a dashboard of metrics. Some simply display relative concern about E, S, and G. The ones that interest me most go further. If the client is interested, how will I best be able to enable them to make an informed decision. Do they need to see the research, are they more concerned about stories than statistics, are they looking to impact the world through other means than just their money?

    So where should you hunt these down?

    The market for these questionnaires is growing rapidly and there is great potential for improvement. Some risk profiling providers are now in the same business groups as ESG data sources. Others have funded academic research. We are not yet seeing the full fruits of these investments.

    My starting place was risk profiler providers. I used a combination of Ian McKenna’s advisersoftware.com Ecosystems report and Heather Hopkins’ nextwealthdirectory.co.uk to identify the options.  

    There are some standalone tools, but for me, I don’t want to be sending a client multiple links to different sites/tools/providers so I focused there.  

    Ask questions about what they are measuring, how they validate/test it, what they plan to develop in the future, and try them out on your team. Remember what you decided you want to measure - don’t be satisfied until you can do it.

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