While financials and materials dominated trades leading into 2024, the popularity of other sectors like healthcare and information technology followed generational, and even demographic, lines.
The representative working group is lobbying the government for a broader section of study to be eligible for credit within the ‘equivalent degree’ requirement for advisers in the hope that more people will be encouraged to join the profession.
Adviser at a crossroads: Leadership, sustainability and the election of choice
For Melbourne adviser and principal James O’Reilly, the tipping point of a seismic shift in the way his Northeast Wealth practice approached investment came when he realised just how much his clients wanted not just guidance, but leadership.
After speaking to his client base about sustainable investment for years, the team started surveying clients about the activities they may want to avoid in their portfolios. When they gave clients specific options such as tobacco and armaments they showed an almost universal desire to avoid linked investment. “They ticked every box,” he tells The Inside Adviser.
When they changed the survey and asked the clients to actively list their concerns without prompting, however, the response was much more muted.
“They didn’t write any,” he recalls. “The message there was that clients want leadership on this. They often don’t know a lot about sustainable investment so they want prompting and guidance. They want leadership.”
O’Reilly’s realisation became the catalyst for what was already an active desire to shift the investment policy for the client base of Northeast – a growing five year-old practice with three licensed advisers on Melbourne’s outskirts – towards a sustainability mandate. In 2022 the decision was made, with all new clients pledging to sustainable investment portfolios from the start of 2023.
“For all new clients moving into the business there is only one way, and that is sustainable investment,” he says. “If they’re flaky on the sustainable investment piece they go down the road.”
Northeast tracks new client portfolios with Ethos ESG, an Australian-based software provider that analyses over 13,000 stocks and funds with “impact assessment” filters and screens on issues such as climate action, gender equality, peace and justice, inclusive economics and sustainable resource use.
Trust and choice
O’Reilly’s hard line was tempered for existing Northeast clients, however. Despite his team’s fervent belief in the importance of sustainable investing there was an acceptance that longstanding clients may not come to the same conclusions at the same point in time.
“Our existing clients are offered the choice to come with us and transition in line with a sustainable portfolio, or alternatively they can keep their existing portfolio,” he says.
“That was a difficult decision. We’d prefer they all did but I think it would be unfair to tell clients that you have a longstanding relationship to move one way,” O’Reilly continues, before adding that over half of existing clients have already agreed to transition. “And we’re getting more on board every day.”
Going all in
O’Reilly says his desire to shift towards sustainable investment practices stems from a long-held personal ambition to “stick a pin in the ground” and make a difference. It was the feedback from clients, however, and discovering just how much they wanted leadership on sustainable investing, that sparked action.
“When we ask our clients, without promoting any agenda, if they have ambitions to invest ethically, two thirds say yes – and that’s without any framing at all,” he says. “We realised that if you actually gave clients context and clarity around what it means to the planet and their portfolio, those numbers would be much higher. So we went all in.”
It’s a choice the adviser believes many others will face. At some point financial custodians need to acknowledge that their position concentrates their enablement and puts them in a privileged position to make a difference.
And adopting sustainable investment practices comes with far less baggage than it used to.
“We’re starting to see a really beautiful groundswell of advisers reinventing their thinking,” he says. “A portion of advisers still hold onto the belief that it’s less profitable, but the message for me is that advisers need to revisit that thinking. It was correct in 2012, 2015 perhaps, but not today. The global inflows we’ve seen into this are phenomenal. You’re no longer paying 1.5 per cent for these sustainable high-quality [managed fund] options.”
The narrative on sustainable investment has shifted considerably over time. Along with cheaper ESG themed managed fund options, the slate of low-cost sustainability-focused ETF offerings give advisers plenty of choice. The governance benefits of these investments, combined with consumers trending towards sustainable companies more broadly, also means they don’t necessarily need to sacrifice returns.
Not that swollen returns are something O’Reilly uses to justify the switch.
“Studies from BlackRock, Morningstar etc. show that sustainable investing lowers volatility over the medium and long-term and we believe it creates better alpha, but we’re not hanging our hat on the alpha piece yet as it’s probably early on for that.”
Ultimately, for O’Reilly and other advisers making a commitment to sustainable investing the decision is about more than money. “The right move is the right move,” he says.
