A majority of Australians say they have sustainability goals for their investments, but many feel their wealth manager "falls short" in understanding their values.
There is an overall growth in "for purpose" investing in wealth management clients, according to the 2021 EY Global Wealth Research Report. EY surveyed 2,500 wealth management clients in 21 markets, including Australians, and found that a majority (76%) of Australian respondents have personal sustainability goals, yet 41% feel their wealth manager falls short in understanding their values.
The report explores what clients value most in their wealth management relationships across service models, engagement choices and value-aligned advice.
"Australian clients were relatively consistent with the global statistics in that 76% did have sustainability goals," notes Rita Da Silva, EY Oceania wealth and asset management leader. "[However] Australia is lower than global and APAC in feeling that their wealth manager understood their values."
Interest in specific ESG themes has increased over the past year, and is growing fastest among the industry's wealthiest clients, the EY report notes. In the last 12 months, "climate change has not only climbed the agenda of 24% of the mass affluent population but also among 46% of ultra-high net worth clients."
This could lead to what EY calls a "major reallocation of investments could be on the cards - with 72% of Australian respondents believing it is important to consider ESG parameters in their portfolios and impact investing expected to grow 14% by 2024, reaching an average adoption level of 43% (higher than the global average of 35%)."
This is also leading wealth management clients to look at building purposeful investment portfolios and wealth relationships. EY found that with climate change and carbon emissions (47%), better worker welfare and human rights (29%), and air and water pollution (24%) the top three ESG issues with Australians.
Nearly 80% of wealth clients globally reported having goals related to sustainability in their lives, while 62% of clients, regardless of age or gender, have goals related to generating a legacy. Both of these - sustainability and legacy — are important when considering a client's overall purpose, EY notes.
"Part of the purpose can be people wanting to build a legacy for their family," da Silva notes. "Part of this is why are people going to see wealth managers, what are their ultimate goals in life, and in terms of the long-term values, people are building in more sustainability goals."
Respondents reported that over the next three years they will increase the use of sustainable investing strategies. Positive screening — "best in class" selection — is expected to grow by 23%, thematic investing by 7% and 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, the report says.
Impact investing is also expected to grow to 15% by 2024, reaching an average adoption level of 35%, and could spike higher, exceeding 50% among ultra-wealthy investors, millennials and Asia-Pacific clients, the report noted.
"There definitely were people saying that within the next three years, they will change their focus on investing away from just the traditional approach to more positive screening, and also seeing that demand for impact investing," da Silva says.
Wealth management clients also report that they are seeking to consolidate their financial relationships in one place - across private banking, wealth, insurance and investment services - but 66% of those who would like to consolidate have yet to choose a sole provider.
One deciding factor in wealth manager selection is a firm's diversity and inclusion (D&I) practices, with 57% of Australian respondents seeing D&I efforts as important when evaluating a wealth manager, which is higher than the global average of 48%.