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INVESTMENT EXECUTIVE BROKERAGE REPORT CARD
ESG factors into our fundamental
May 2020
there’s an authentic discus- sion [around ESG and RI] that will be developing and building momentum over the coming years. We’ll be putting train- ing, education and coaching into our advisors to be able to not only have that conversa- tion with their clients, but also to get their own minds wrapped around how they would work it into their client portfolios.”
According to the Responsible Investment Association, assets in retail mutual funds desig- nated or labelled as “respon- sible” increased in Canada by 34% between 2016 and 2018, and assets in RI-dedicated ETFs more than doubled.
“The growth of assets in these products reflects the rising demand for RI among individual investors within a growing prod- uct landscape,” the RIA wrote in its 2018 Canadian Responsible Investment Trends Report. This rising demand was echoed in a similar report by the Global Sustainable Investment Alliance.
“There are some advisors that are ‘gung ho’ on it,” says Steve Galimi, senior vice presi- dent of branch administration at NBF, of the evolving landscape. “They really want to help us be the leaders there. [In the second group], there are lots of advisors who understand [the import- ance of ESG]. They agree with it, but they’ll kind of follow the course.”
Galimi adds that advisors who used to dismiss ESG as just a trend “are now more in [that] second group than saying it's going to go away,” since the bank has encouraged “a lot of educa- tion and awareness.” IE
approach, were mainly con- cerned about the complexity of information they have to deliver to clients.
“I think it’s gone too far. It's a part of our job to look out for the client’s best interest and now they are layering regulations that will create litigation loopholes,” says an advisor with Calgary- based Leede Jones Gable Inc.
Other respondents fell some- where in the middle, saying they agree that reforms are necessary to uphold the integrity of the industry, but that regulators may be implementing these changes inefficiently.
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Do advisors ask clients
about responsible
investment?
Firms say they are putting resources into RI education and support
analysis and investment process.” At Quebec City-based Industrial Alliance Securities Inc. (iA Securities), whose IA Clarington Inhance SRI suite went fossil fuel-free last year, advisors rated the product offer- ing 8.3, up from 8.2. Advisors at the firm were split on the import- ance of ESG, with one advisor in B.C. noting a “big push from cli- ents” while others said investors
don’t seem interested.
The firm has a subadvisory
partnership with Vancouver- based Vancity Investment Management Ltd., which iA Securities calls a “pioneer in the [RI] space.” As of late March, iA Securities said it had more than $1 billion in assets with Vancity, and that it particularly liked the subadvisor’s proprietary ESG analysis and expertise in green bonds.
There also were legitim- ate concerns that “responsible investing” is not clearly defined: “I always ask [clients] what they mean by that and everyone has a different definition,” says an advisor in Ontario with Toronto- based Raymond James Ltd. Raymond James advisors gave the firm a rating of 8.5 in the product offering category.
Similarly, several advisors from other firms were concerned about greenwashing. They were suspicious that ESG or respon- sible investments could be overly hyped for marketing purposes.
“Some of the ESG stuff that we’re seeing out there has felt a little bit more gimmicky than legitimate,” says Andrew Marsh, president and CEO of Toronto- based Richardson Wealth. “But
the changes, with some advisors saying that clients would rather be over-informed than under- informed. After all, “an informed client will make smarter deci- sions and that makes my job eas- ier,” says an advisor in Ontario with Toronto-based CIBC Wood Gundy.
An advisor in Ontario with Toronto-based Richardson Wealth says the client-focused reforms have been a long time coming: “Our industry has had lax rules and reporting standards for a while and I think it’s time we caught up with the rest of the world.”
The remaining 13.6%, who didn’t agree with the CSA’s
n BY ANNE-MARIE VETTOREL
although environmental,
social and governance (ESG) fac- tors have made headlines for sev- eral years for their material effect on investment performance, nearly two in five financial advis- ors at Canada’s brokerage firms do not bring up ESG with clients.
Investment Executive’s (IE) 2020 Brokerage Report Card asked advisors if they prompted conver- sations about ESG and respon- sible investing. In response, 60.2% said they did — leaving 39.8% of advisors not broaching the subject with their clients.
Many of those who don’t said it was because they prefer clients initiate those kinds of conversa- tions or that investors weren’t interested. Some advisors in Alberta mentioned that they assume their clients would find screening out oil and gas stocks disagreeable. For example, an advisor with Montreal-based National Bank Financial Inc. (NBF) in Alberta says that while “of course we talk to clients about different avenues,” the
conversation is “never specific- ally about the environment.”
Several advisors simply expressed interest in learning more about ESG, saying that they expected it to become more relevant in the next three to five years.
Beyond attitudinal or cultural sticking points, there were prac- tical hurdles.
Some advisors said the right products weren’t avail- able. An advisor in Ontario with Mississauga, Ont.-based Edward Jones says IE’s question about responsible investing was a “tough one, because we don’t really have access to environ- mentally conscious products.” Even so, advisors at Edward Jones seemed happy with their product shelf on the whole, giving the firm a performance rating of 9.4 for “quality of firm’s product offer- ing,” up from 9.1 last year.
Scott Sullivan, princi- pal, Canadian products, at Edward Jones, says there are funds offered with the “ESG
or [responsible investing (RI)] stamp of approval.” However, “Our approach to responsible investing is evolving [alongside] our clients’ preferences,” he says, noting the firm is selective about product. Sullivan adds that ESG factors are mainly part of equity analyst research and educa- tional initiatives for advisors at the firm.
At Toronto-based CIBC Wood Gundy, whose product offering rating went up to 8.9 from 8.3 a year ago, advisors were generally positive about the ESG offerings available to clients, with some saying they’d been discussing ESG products for years.
“Effective research, analy- sis and evaluation of ESG issues play a fundamental role when assessing the value and per- formance of an investment over the medium and longer term,” says Ed Dodig, managing dir- ector and head, CIBC Private Wealth Management and Wood Gundy. “CIBC has implemented a rigorous procedure to integrate
Can firms keep up with changing regulations?
Advisors share their views on the CSA’s client-focused reforms
n BY EMILY FOX
for this year’s brokerage
Report Card, Investment Executive asked advisors whether they support the Canadian Securities Administrators’ (CSA) client-focused reforms, and for their thoughts on how the reforms might impact and be received by industry profes- sionals and their clients.
The reforms came into force
on Dec. 31, 2019. While they will be phased in over the next couple of years, they have already pushed firms and advisors to review the way they approach product suitability, know-your- client requirements, conflict of interest requirements and dis- closure rules.
The majority of survey respondents (86.4%) supported
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