Since August 2022, all financial advisers in banks are obliged to ask their customers about their sustainability preferences. While the magic triangle of return, security and liquidity used to play a central role in recommending suitable financial products, the consequences of sustainability regulations are now also finding their way into financial consulting. The buzzword is ESG: Environmental, Social and Governance. So far, so good! Or is it? The goals of the magic triangle are already antinomic, i.e. they cannot all be achieved at the same time. Linking them to yet another condition doesn’t make things any easier. So the question is: What are the first experiences in terms of sustainability consulting in banks?
In theory, this sounds great. However, the duties of financial advisers arise from a variety of legal regulations, such as the Taxonomy Regulation or the EU Disclosure Regulation. In addition, it is necessary to clarify what the customer wants to invest in. This is also heavily dependent on the financial adviser’s knowledge of the products in question or the preferred range of in-house products and investment companies. Financial advisers cannot sell what is not offered. At the moment, more emphasis should be placed on “social” and “good corporate governance” products.
It is clear that the art of consulting is to simply ask the customers exactly what they want. Either the customer indicates that they are not interested in sustainable investments, or they are pointed in the direction of a suitable product at the bank in question. It is positive when customers invest in sustainable products. But this is not the way to develop a truly informative conversation.
How does this work in practice? The financial adviser asks the customer if he or she wants to invest their money sustainably and – if so – in what area. Because the questions are often asked in a closed manner, the answer is often “no”. Imagine being asked about the objectives of the magic triangle mentioned above in this way – the conversation would end after three “no’s”. Absolutely unthinkable. In general, closed questions are a bad way to achieve the goal of advising the customer on the right product. Instead, the conversation and the questions should be used to find out what the customer’s real goals are. How high is their willingness to take risks, what are their return on investment expectations? What (financial) goals do they still have to achieve, what challenges will they face in the coming years and what are their thoughts on sustainability? If it becomes clear in the course of the discussion – and not as a result of a closed question – that the customer is not interested in such investments, then so be it. But how far does the financial adviser’s duty to inform go? For example, when it comes to the fact that there is no contradiction between returns and a sustainable investment, nor with the previous parameters?
Sustainability consulting is still a little bit lacking. This is because sustainability issues cannot be routinely answered with a questionnaire. There are significant and individual preferences and dislikes to be discussed, and any lack of knowledge needs to be addressed. This requires tact, empathy and sensitivity. Sustainability consulting is still sometimes fraught with ignorance and inexperience. There are (sales) targets to be met and boxes to be ticked on forms to document that the customer was asked about their sustainability preferences during the consultation. A real and serious consideration of sustainability, its historical background and the future developments is often not yet part of this. In my view, many financial advisers are not (yet) capable of discussing, for example, whether it makes sense to classify nuclear power and gas as green, or the pros and cons of investing in controversial companies.
Experience shows that the problem lies in the approach. Many financial services providers believe that a short online training course is all that is needed to bring about a change in the way people think. This is a big mistake. Sustainability requires conviction, on the part of the customers, the banks and, above all, the employees. But it hasn’t clicked yet. One suggestion would be for the German Federal Financial Supervisory Authority (BaFin) to conduct surveys – in line with the implementation of the MiFID rules – and check how knowledgeable financial advisers are about sustainability. Maybe then it will click.