Dynamic Planner is to launch the industry's first psychometric Sustainable Investing questionnaire on 7 May, aimed at all advice firms and clients using its tool.
The newly-devised questionnaire provides a "simple, yet academically robust solution" to the challenges advisers face when talking to their clients about environmental, social and governance (ESG) factors and sustainability, it said in the launch statement.
The development of the questionnaire has been led by Louis Williams, Dynamic Planner's head of psychology and behavioural insights. It has been designed in consultation with focus groups of advisers and tested by 1000 investors. Its key aim is to provide advisers with a robust and repeatable process to hold sustainability discussions with clients, by accurately capturing an individual's ESG preferences.
Louis Williams, head of psychology and behavioural insights at Dynamic Planner said: "Sustainable investing is not a straightforward tick box exercise. Preferences can be complex, encompassing an incredibly broad range of factors.
"Expectations of the impact it can have can be misjudged, along with the importance and balance clients place on potential returns and their sustainability preferences. The key to fully understanding the ESG and sustainability hopes and expectations of a client is real engagement, so that their preferences can be accurately captured and the implications of their choices discussed.
He added: "Until now, emphasis has been placed on understanding the impact companies have concerning ESG but few advances have been made to create a process which truly helps clients to understand the whole picture. Bringing together psychology and statistics in the form of our Sustainable Investing questionnaire enables us to help advisers cut through the noise and really understand how someone might feel and act both in the short and long-term. Successful investment and sustainability conversations pivot on a clear understanding of someone's goals."
The Sustainability Investing questionnaire will be used alongside Dynamic Planner's Sustainable Investing insight, launched in February. It has been designed with the client in mind, to avoid jargon and complex terminology; no financial knowledge is needed to answer questions; it employs an appropriate number of questions in an appropriate order; all of this based on feedback and insight provided through testing and consultation with investors and advisers.
Ben Goss, CEO at Dynamic Planner said: "Our psychometric Sustainable Investing questionnaire is an industry first, built on a combination of the robust academic thinking of schools of psychology and statistics. And importantly, in tandem with investors and advisers.
"Our team has the experience of successfully creating a risk profiling questionnaire that has supported more than one million clients of advice firms since 2013. What we are launching now is built on a similar formula, to capture a client's sustainable investing preferences - an extension of our suitability process with the extra ‘s' of sustainability.
"Combined with our Sustainable Investing insight launched earlier this year, we will be able to help advice firms deliver more deeply valuable and bespoke financial plans in line with clients ESG preferences."
The Dynamic Planner Sustainable Investing questionnaire measures:
1. Psychological distance: People are more likely to take greater risk regarding decisions which impact far in the future. An individual may acknowledge the importance of sustainable investing, but when considering how future generations or people elsewhere may benefit, this can impact their decision in the short-term.
2. Personal values: It can be assumed that a client's sole desire is to maximise their wealth. However, they can also be motivated to promote social change, consistent with personal values and therefore be willing to accept lower returns.
3. Emotional benefit: It is important to measure the emotional benefits of investing. People can benefit emotionally when they believe they have acted responsibly through their investments and can feel compensated even if they receive different risk/reward outcomes, as a result.
4. Positive impact: We know a proportion of investors express a desire to do good with their investments, producing social and / or environmental benefits. This extends beyond a company simply monitoring or managing ESG risks. Such individuals are socially motivated. They may be prepared to accept lower returns in order to achieve their goals.
5. Financial considerations: Although investors may display preferences for sustainable investing, there are trade-offs that they should be aware of. Studies have shown that ESG investments can produce at least competitive returns. Nevertheless, it is important to understand how a client prioritises investment opportunities and financial returns in relation to sustainability preferences.
Dynamic Planner Sustainable Investing insight and the newly launched questionnaire will enable advisers to respond to increasing demand to talk about sustainability, ensure their clients fully understand both the ESG and sustainability opportunities and risk that their investments present, as well as helping to support advisers in fully meeting the fast-evolving regulatory requirements.
Dynamic Planner is running three Sustainable Investing Webinars from 8th-10th June.
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