Financial Advisor-Investor Relationship. Mirroring Survey on Sustainability and Investments - 2020

The survey analyses the financial advisor-investor relationship in order to identify areas for improvement due to gaps in communication, limited knowledge and poor exchange of information.

The 2020 Report investigates whether the financial advisor-investor relationship may lead to a higher consideration of the ESG factors in the individuals' investment process by leveraging on the communication between the parties involved.
The integration of the ESG factors (Environment, Social, Governance) in the financial advice process is among the most important goals of the Action Plan on Financing Sustainable Growth launched by the European Commission in 2018. The incorporation of sustainability rests on the assumption, supported by evidence and empirical research, that the financial advisor can play a key role in informing and promoting investors' interest in sustainable and responsible investments.
It is therefore useful to investigate whether the financial advisor-investor relationship may lead to a higher consideration of the ESG factors in the individuals’ investment process by leveraging on the communication between the parties involved.
The present Report pursues this objective by comparing investors' opinions on responsible investment products with advisors’ perceptions of their clients’ preferences. Building on the answers to a double interview (so-called mirroring survey), the Report detects some areas for improvement also thanks to a matching indicator, i.e. a measure of the alignment between investors’ statements and professionals’ perceptions.

Advisor-investor relationship - In order to grasp the main characteristics of the advisor-investor interaction, the first topic explored through the double interview dealt with the distinctive features describing the financial advice. To this respect, 'easiness' is the notion most frequently associated with the service by the majority of both investors and professionals, while a certain misalignment across the two samples emerged with regard to additional features (e.g., 'competence' and 'experience' of the professional for investors and 'protection' and 'delegation' for advisors). Secondly, the investors’ decision-making process was explored, namely with respect to the persons involved in the investment choices, finding that professionals are only partially aware of the role of the partner reported by their clients. Third, the survey investigated investors’ capability to develop an overall view of their financial situation: to this respect financial advisors seem to overestimate the skills of their clients, who are mainly focused on recurrent revenues and expenses only. Finally, advisors and their clients agree about investment goals: capital protection comes first and foremost for both groups of respondents, followed by capital growth.

Sustainability: attitudes and knowledge of advisors and investors - As for the attitudes towards sustainability, the survey detects first the consideration given to ESG factors by both groups of respondents and secondly financial advisors' perceptions about investors’ stated preferences. Environmental issues are a priority for the most of interviewees in both samples, while social issues appear to be more important for investors and governance factors for professionals. Financial advisors perceive the importance of environment to investors but tend to overestimate the importance attributed to governance profiles.

Responsible investments: attitudes, knowledge and holdings - When it comes to the consideration of ESG factors in individual choices, 40% of investors state that they take environmental and social impacts of their behaviour very much into account when making financial and investment decisions. Nonetheless only 19% of them hold social responsible investments (SRIs) and only 13% consider themselves well informed about the features of SRIs. The main characteristics of sustainable products as identified by the investors are the full compliance with ESG requirements and the long-term horizon of returns, followed by high costs lower returns compared to those of alternative options. Financial advisors, who on the whole seem to slightly overestimate the proportion of informed clients, appear to be aware of investors' beliefs about the features of sustainable products.
As for the importance that clients acknowledge to the financial features of an investment (i.e. financial return, risks and cost) relative to its ESG impacts, 12% of investors may be regarded as ‘impact investors’ (because they prioritise ESG performance), 30% can be classified as ‘financial investors’ (because they prioritise financial aspects), while the remaining consider both features. Advisors catch these preferences only partially, as they underestimate the importance given to sustainability, probably because of their inclination to care above all of financial performance, which is indicated as the only relevant goal in 42% of cases and as a goal subject to sustainability objectives in 31% of cases.
With regard to the drivers of socially responsible investments, the possibility to 'help improve the world' is the answer recording the highest frequency (60%), followed by better returns and lower tax/cost than those of alternative options (respectively, 58% and 55%), the availability of information on ESG impact (42%) and the recommendation by a specifically trained advisor (41%). Beyond being aware of the motivational levers just mentioned, advisors overestimate the role of informal advice (i.e. the advice by family/friends/colleagues) and of the trusted bank/intermediary. For their part, advisors are willing to recommend responsible products if SRIs expected financial performance was higher compared to those of alternative investments (67%), their clients showed sensitivity to ESG issues (62%) or SRI products were promoted by tax incentives (55%).
Among the deterrents from responsible investment, respondents (both investors and advisors) point to potentially lower than expected returns, followed by the lack of a commercial proposal and the fear of greenwashing. A further deterrent highlighted by investors is the cost, which conversely financial advisors do not perceive among the most relevant elements.

Responsible investments: the role of financial advisors - Investors’ and professionals’ views diverge with respect to the proactivity of the financial advisor in recommending sustainable investments: more than a third of the former declare that they have not received any proposals, whilst only 10% of advisors state that they have never recommended sustainable investments and report to have been proactive in 54% of cases.
The importance attached by investors to ESG factors is accompanied by a fair amount of attention to responsible products, as evidenced by the interest expressed by 69% of investors in receiving information on SRIs, The advisors partially miss their clients’ preferences on the information channels: while 72% of professionals believe that the sources of information preferred by investors are primarily public institutions followed by trusted professionals and trusted intermediaries (64% and 61% respectively), investors indicate the advisor in 78% of cases and the bank in 66% of cases, while citing public institutions just in 40% of cases. This evidence reveals the potential of the financial advisor's role as a multiplier of investors' interest in responsible financial products.
A greater matching across the two samples is recorded with respect to the type of information useful to investors. In particular, financial advisors correctly perceive investors’ preference for a synthetic indicator or certification of the responsible investment (ecolabel), as well as for information allowing comparison across similar options (in terms of risk-return-cost) and providing details of the ESG characteristics of the product.
Finally, a significant gap arises with respect to the elicitation of the ESG preferences, recommended by ESMA guidelines on the suitability assessment, updated in 2018 following the EC Action Plan: while 75% of advisors state to regularly assess their clients’ ESG preferences (albeit with variable frequency), the proportion of investors referring to have been asked about them drops to 29%.
In fact, most of the advisors do not seem to appreciate the relevance of the assessment of ESG preferences yet. While 47% of professionals catch its potential along different dimensions (as a competitive factor in 21% of cases, as an opportunity for communication in 17% of cases and as an opportunity to raise awareness on ESG issues in 9% of cases), the remaining 53% are distributed among those who consider it premature to appreciate the value of the ESMA recommendation (35%), those who regard it as a bureaucratic fulfilment (6%) and those who prefer not to answer (12%).

Final remarks - The mirroring survey highlights some important areas for improvement in the financial advisor-investor communication, which can have an impact not only on the relationship between the parties involved but also on the clients' investment choices. Beyond the above mentioned misalignment with respect to the main features associated with financial advice and the ability of investors to gain an overall view of their finances, professionals appear to miss, or only partially catch, investors' views on a number of important issues, including the motivation prompting responsible product holding and the information role investors attribute to advisors. Finally, advisors do not fully appreciate the relevance that the elicitation of ESG preferences within the suitability assessment process may have to reorient investments towards sustainability.
A final consideration concerns a caveat to be taken into account when interpreting the data. Having been conducted in January 2020, the survey does not reflect the ren