A major reallocation of investments could be in the cards as more wealth management clients set ESG parameters in their portfolios.
The vast majority of respondents to an EY survey in the region (89%) have personal sustainability goals, higher than the 78% global average who said the same, yet 59% feel their wealth manager falls short in understanding their values.
“The growing focus and interest on ESG and impact investing present a huge opportunity for wealth managers in the coming years and the winners will invariably focus on understanding their clients’ values and offering a broad choice of ESG investing options, tailored guidance and advice,” said Mark Wightman, EY Asia Pacific wealth & asset management consulting leader.
Based on a survey of 2,500 wealth management clients in 21 geographies, the 2021 EY Global Wealth Research Report examined what investors value most in their wealth management relationships.
As much as 88% of respondents believe it is important to consider ESG factors in their portfolios, and impact investing is expected to grow through 2024, reaching an average adoption level of 52% from 45% in 2021.
However, when it comes to sustainability goals, wealth providers’ understanding is failing to keep up with clients’ beliefs, which should provide them with a wake-up call, as 35% of clients who have sustainability goals are looking to switch wealth managers in the next three years, over twice as many as among clients without sustainability goals (15%).
“It’s also striking that a quarter of millennial clients see sustainable investment propositions as the most important factor when selecting a new wealth manager,” said EY.
The gap in understanding is especially severe in some key Asia Pacific markets. For example, 97% of clients based in China have sustainability goals, but three in five feel their provider does not understand these well enough. In Japan, 86% of clients have sustainability goals, but three-quarters believe wealth firms could do more to understand their priorities.
The research shows that ESG is personal to each individual — some care more about certain environmental issues, others more about social issues. This will make it even more challenging in the future for wealth providers to understand every client’s unique needs, and to deliver against them.
One deciding factor in provider choice will be a firm’s diversity and inclusion (D&I) practices. Wealth management clients surveyed increasingly view D&I as a sustainability goal and a key driver of provider choice with 59% seeing D&I efforts as important when evaluating a wealth manager. This trend is even more significant among millennials (72%), the ultra-wealthy (60%) and in markets such as China (68%) and Singapore (63%).
EY expects that in the next three years, there will be a strong pickup in the use of sustainable investing strategies. Positive screening — “best in class” selection — is expected to grow by 23%, thematic investing by 7% and outright philanthropy by 15%. On average, interest in these techniques is higher in Europe, Asia-Pacific and Latin America than in North America, and stronger among younger and wealthier clients.
“For wealth managers, the challenges and opportunities posed by sustainable investing only underline the importance of using data-driven understanding to deliver differentiated, tailored experiences,” concluded EY.