Advisor thrives in responsible investing nichepar Rosemary McCracken | August 18 2014 09:03AM
Sucheta Rajagopal is an investment advisor and portfolio manager whose book of business at Jacob Securities Inc. in Toronto is devoted exclusively to responsible investing. “It can be done,” she told delegates to the 2014 Canadian Responsible Investment Conference in Toronto in late May. “The demand is huge. There are enough clients out there. In fact, they are underserved because there are not enough advisors who are doing this kind of work.”
After graduating from Osgoode Hall Law School, Rajagopal moved into the business world instead of practising law. She earned her licenses to sell securities and started work as a financial advisor. And she discovered that there was a large pool of investors who wanted to invest their money in socially responsible ways, which dovetailed nicely with her passion for social justice. “I’ve always had an interest in corporate social responsibility,” she said in a post-conference interview, “in what companies are doing and not doing, and what consumers can do about it.”
Today, at the age of 55, she manages about $60 million in assets for 150 clients. “I don’t buy weapons or tobacco or invest in nuclear energy.” She added that she tailors many of her clients’ portfolios around their specific interests or concerns.
Responsible investments are among the world’s fastest-growing asset classes, with about $34 trillion in assets under management globally. The most recent survey of the Canadian responsible investment market released in January 2013 found growth of 16% in Canadian AUM ($600.9 billion) from a previous survey 18 months earlier ($517.9 billion). By comparison, total Canadian AUM grew by 9% in the same period.
Financial advisors are key to the growth in responsible investing, Kim Buitenhuis, Toronto-based senior vice president, product and marketing, at NEI Investments, told the conference. She noted that a recent NEI study of Canadian investors, compiled by Environics Research Group, found 70% of those surveyed were not familiar with responsible investors. “For advisors who make RI part of their practices,” she said, “tapping into this market could mean a considerable upside to their businesses.”
But too few advisors are making responsible investing part of their practices, Buitenhuis said, noting that 79% of those surveyed for the study said their advisors had not initiated conversations about RI. Fifty-four per cent said they believed that an advisor who discusses RI with them will probably serve them better as a financial professional. “So RI is a clear opportunity for advisors to differentiate themselves from the competition,” she said.
Some investors erroneously believe that RI means sacrificing investment returns. It is a myth that RI funds underperform the markets, and research has shown that responsible investing can be a powerful tool to mitigate risk, generate returns and catalyze positive societal change. Companies that consider environmental, social and governance (ESG) factors in their executive compensation have an edge over those that do not, Gary Hewitt, head of research at New York-based GMI Ratings told the conference. According to GMI research, total shareholder return of U.S. companies between 2011 and the first quarter of 2014 that include ESG considerations in executive compensation out-performed non-ESG companies by 3% over the three years.
GMI also examined board oversight, and found that when corporate boards focus on ESG factors, companies experience a lower number of events such as spills, fires and other mishaps that have a negative impact on total shareholder return. “Attention to ESG at the board level generally equals better returns,” Hewitt said.
Buitenhuis said advisors need to point out to clients that they do not have to give up competitive returns in order to invest responsibly. “These are investments like any other,” she said. “Clients don’t have to compromise their financial futures. For advisors, there is no downside to bringing up the subject of responsible investing.”
Advisors who decide to position themselves as RI advisors need to ensure that all aspects of their businesses reflect ESG principles, Buitenhaus added. “This will apply to the Christmas gifts you send clients, the venues where you hold client events, and the food and beverages you serve at these events.”
To enhance financial professionals’ knowledge of responsible investing, the Toronto-based Responsible Investment Association earlier this year launched the RI Academy, a training program for financial professionals. The academy offers CE-eligible courses leading to the Responsible Investment Advisor designation that will help investors to identify financial advisors who have been trained to understand and integrate ESG factors into their investment choices.
For course details, visit riacanada.ca/riacademy.