The latest developments in the ESG space.

Oxford Risk
A new study from behavioural finance experts, Oxford Risk, reveals that wealth managers still need to do more to incorporate clients’ sustainability preferences into their current processes, and many don’t have access to adequate tools or software in order to effectively assess clients’ ESG preferences.

Its study with wealth managers across Europe found that despite this being integrated into MiFID II requirements, less than one in five strongly agree that their firm has successfully incorporated a method of establishing a client’s sustainability preferences into their processes. One in 10 aren’t sure whether they have managed to do this or not and one per cent say that they definitely haven’t, the survey reveals.

The study was carried out by independent research company PureProfile, which interviewed 210 wealth managers in France, Germany, the Netherlands, Spain, Italy, Switzerland and the Nordics, responsible for €3.2 trillion ($3.5 trillion) assets under management in July.

Oxford Risk said that its revenue from clients in continental Europe has increased by 300 per cent in the past 12 months, with strong demand from wealth managers for support with new ESG regulation. It is one of the key drivers along with an increasing need for improved suitability assessments, the firm continued.

The research published by Oxford Risk, which builds behavioural risk suitability software to help wealth managers support clients, found that many are unable to do this without the right tools and software. Only 26 per cent strongly agree that they have access to the right tools or software in order to assess an investor’s sustainable (ESG) preferences effectively. One in 10 said they aren’t sure and 4 per cent believe they definitely don’t have access to the right tools or software in order to assess an investor’s sustainable (ESG) preferences effectively.

Insights into behavioural finance – i.e. people mistaking portfolio gains for pure skill rather than also accepting the role of chance, treating losses more emotionally than they do with gains, and following crowd behaviour – have become more widely appreciated. The ideas, which draw on views about how humans have evolved from pre-history, are used to explain events such as stock market booms and busts. 

The study with wealth managers shows that only around one in four would strongly recommend the tools or software they use to assess the sustainable (ESG) preferences of clients. Around 15 per cent aren’t sure and 4 per cent definitely wouldn’t recommend the tools or software they use to assess the sustainable (ESG) preferences of clients.

When it comes to acting on these preferences, only 24 per cent of wealth managers strongly agree that they have access to a robust product shelf in order to meet a client’s preferences for sustainable (ESG) investing as part of their investment portfolio. Around two-thirds agree that they have, 14 per cent aren’t sure and just 2 per cent disagree that they have access to a robust product shelf in order to meet a client’s preferences for sustainable (ESG) investing, the survey reveals.

James Pereira-Stubbs, chief client officer at Oxford Risk, said: “Given that MiFID II requirements integrated sustainability preferences into the suitability assessment almost a year ago, it’s concerning that this research shows less than a fifth of wealth managers in Europe strongly agree that their firm has successfully incorporated this into their processes.”

“It appears some are hampered by a lack of the right tools and software to do this effectively and quickly, and we would urge wealth managers to find the right partner to help with this so that they can address client sustainability preferences properly by adopting best practices and a methodology that adheres to the MiFID II regulation,” he continued.

Oxford Risk’s behavioural tools analyse investors’ financial personalities and preferences as well as changes in their financial circumstances which, supplemented with other behavioural information and demographics, enables them to build a picture of client suitability.