Financial advisors usually encounter two types of clients when it comes to environmental, social, and governance (ESG) investing. There are those who know about ESG investing and have specific requests on how to align their investments with their values. The other type is those who are not familiar with ESG, but quickly understand the importance of it once a financial advisor asks them a few pertinent questions.
And this is where financial advisors Alajahwon Ridgeway and Stuart Peskin come into play. Ridgeway, who owns A.B. Ridgeway Wealth Management in Lafayette, La., says his goal is to bring value-based investing to the general public. In his faith-based firm, he wants his clients to “feel good about the investments that they make: from a moral standpoint and also from a sustainable point of view.”
Ridgeway’s experience in the financial industry spans nearly a decade. He worked on the brokerage side at JP Morgan prior to launching his firm. He said clients’ requests for more sustainable options are what motivated him to start his own firm.
Peskin, CFA, CFP, whose financial experience spans 30 years, primarily on the institutional side, said in a recent podcast with Ridgeway that sustainable investing has “gone from a communication breakdown to a communication breakthrough” with organizations and clients.
“At the core of sustainable investing is incorporating preferences along the lines of various environmental, social and governance-related concerns,” he said.
So, what happens when a client walks into a financial advisor’s office?
Ridgeway says that before everything else, he has an in-depth conversation with clients about their values and beliefs around money.
“If we don’t know the person, there’s no way that we can invest properly and invest in their best interest,” he said. “So, we make sure we’re a good fit.”
Among the many questions, he asks about a client’s risk tolerance. For clients who are new to sustainable investing, he also tries to find out if they’re afraid to jump into it. Many still have fears of losing out on financial returns when investing in ESG. This is where he guides clients to make them understand that this is not necessarily so. The whole process is educational and helps clients discover what really matters to them.
While he uses a questionnaire as a baseline, the real ESG answers come from asking questions. For example: “How do you feel about investing in companies that profit from …?” He will then list industries such as organic farming, clean energy, alcohol, and firearms.
Other ESG topics might include overcompensation of CEOs or the pressure on BlackRock and Vanguard to divest carbon-intensive companies in a fight to combat climate change. That said, his philosophy is to invest in companies that are making a positive impact: “The ones who are not, will eventually exclude themselves.”
When clients walk in with some knowledge of sustainable investing, “then the conversation is about me listening to them, and finding out what it is about their value system that has led them to this place where they feel that their investments should be aligned with those values,” said Peskin. “Is it about not holding certain companies? Is it about holding more of companies that are doing right by the world?”
So, what are some of the important factors when choosing a financial advisor for ESG investment?
Ridgeway says that clients need to work with a financial advisor that they’re comfortable with to speak on their behalf: “Do they share the same values and beliefs?”
In line with this, communication is really important: “You need an advisor that is able to do research,” said Ridgeway. “When you choose an advisor, find out what research they have, what they know, and what they’re willing to find out.” An advisor who’s stuck in their ways when it comes to ESG is not a good choice, he pointed out, as the industry is dynamic and evolving.
Another important element is how many years of experience the advisor has in the financial advising market. He would recommend at least five years of industry experience. And finally, an advisor’s support system such as tools and resources they use is also key to a successful relationship.
“I think we’re going to look back at this time period as one of significant change,” said Peskin. “But it will not mean that you’re going to see every advisor promoting their ability to provide advice in this area, because I do think it requires a lot of up-front work. So, it will mean that it’s more of an evolutionary process. It’s going to continue to grow and this will be looked at as a turning point.”
