Tips for selling SRI

(August 2007) SRI assets have grown astronomically on the institutional side but retail SRI has a comparatively tiny share of the Canadian mutual fund market. That could all change with two of the big banks recently announcing plans to offer SRI funds. For now though, SRI remains a niche product, partly because advisors generally aren’t comfortable discussing “softer” topics, such as the environment, with their clients.

For those who are interested in tapping this growing trend, however, there might be marketing help on the way from some unlikely market entrants, and some trailblazing advisors already specializing in SRI have their own tips to offer.

“The easiest thing for advisors is to just start talking to clients about environmental issues,” says Sucheta Rajagopal of Hampton Securities in Toronto. “A lot of people out there are more aware, they’ve seen [the Al Gore film] An Inconvenient Truth and they know about climate change. They know these issues are having an impact. There’s a lot of awareness on the environmental side, so it’s fairly easy to raise that with clients.”

Stephen Whipp, an investment advisor and SRI specialist with Berkshire Securities in Victoria, agrees with Rajagopal. “Just ask the question. All the studies we’ve heard say that Canadians want to be asked about environmental and social issues by their advisor, but they’re not asking that question. This is not a criticism of advisors, it’s more of a reflection of the culture we are in.”

Canadians are beginning to connect the dots when it comes to the environment, Whipp notes, and they’re wondering what impact climate change and global warming will have on their daily lives.

SRI funds have been available in Canada for more than 20 years, but it’s been a struggle for advocates to convince advisors and investors to put money into those funds. According to the Social Investment Organization, the non-profit association for Canada’s SRI industry, retail SRI fund assets totalled $18.1 billion as of June 30, 2006.

That’s a 22% increase from 2004, but still a drop in the bucket when you look at the entire Canadian mutual fund universe, worth an estimated $707 billion, according to IFIC’s numbers.

Recent news, though, that two of Canada’s big banks — RBC and TD — have decided to launch retail SRI mutual funds has created a buzz within the SRI community, and with good reason. The banks are huge players in the fund world (RBC Asset Management has $79 billion in mutual fund assets under management, while TD Asset Management has $55 billion) and their entrance into a world previously dominated by niche players, such as Ethical Funds, Acuity, Meritas and Inhance, could revolutionize the Canadian SRI landscape.

This summer, RBC Asset Management launched three new SRI funds (Canadian equity, balanced and global equity), under a co-branded arrangement with Toronto-based Jantzi Research, considered one of the country’s top SRI research firms.

In his 10 years with RBC Asset Management, vice-president David Richardson says questions and requests for an SRI fund series are among the most common queries the company gets from advisors. He says the time was right for his bank to make this move.

The volume of those questions has increased every year as well, he adds, with the markets on a roll and increased general awareness and concern about issues like the environment and corporate governance.

“Some of our reluctance to come to market earlier was because our expertise at RBC Asset Management is not to be an arbiter of what is socially responsible and what isn’t,” he concedes. “We’re an investment management firm, which is why we had to find the right partner.”

The RBC-Jantzi funds will first be screened by Jantzi before RBC takes over the investment management side of things, along with sales and marketing.

RBC has already started training its advisors on the nuts and bolts of SRI, with the help of Jantzi Research president Michael Jantzi. “He’s been involved in SRI since the start of the movement,” says Richardson. “He can give a historical perspective on how SRI has evolved over time to our sales staff to help them decide which clients these products are right for.”

TD Asset Management, meanwhile, is taking a different approach with its new TD Global Sustainability Fund — you won’t even find the term “socially responsible” in TD’s promotional material for the fund. The product will invest mostly in companies included on the Dow Jones Global Sustainability Index, which contains the top 10% of companies listed in the Dow Jones Global Index who are considered leaders in their industries in terms of corporate sustainability.

“It’s an actively managed fund, benchmarked against the DJSI World. We anticipate the majority of the portfolio will be invested in companies in that index,” explains Karl Shulz, head of TD Asset Management’s fund research and portfolio strategy team. “That will be about three-quarters of the portfolio. The rest of the portfolio is designed to capture smaller companies that are leaders in environmental specialty product, such as clean energy technology.”

Similar to Richardson’s experience at RBC, Shulz says TD also has seen a number of investors asking for a product like this in their fund lineup. But Shulz says his sales team will focus on sustainability when discussing the new product with advisors. “Advisors are used to seeing traditional SRI-type products over the years based on negative screening. We’ll be trying to explain some of the differences in the strategies we’ll be taking. We think this is a model that can lead to better investment potential over time.”

Shulz says he expects the fund will be successful, with considerable assets, but admits it might take a few years. The TD fund will be available for sale in September.

SRI advisors like Rajagopal will be watching the banks and their promotional efforts closely. “If the banks launch these funds with a significant ad campaign in the branches, along with some advertising, that is going to raise the profile of SRI,” she says. “But if they are launching the funds just because they feel they have to be in the SRI space, it’s not going to make a big difference.”

“I know the other banks are within months of coming out with similar funds,” Whipp adds. “But I don’t know if you’ll see a big push on this. Most of the banks still look at SRI as specialty funds.”

RBC will promote the new offering in the media and through some advertising, but Richardson says the funds will do well, mainly because of the bank’s branch-based advisors.

“Within the bank itself, culturally, our salespeople view this as a positive development. They’ve been asking for this for a long time so we think it’s going to be very successful.”

RBC is forecasting sales between $300 million and $500 million over the next three years for the trio of new funds.

That’s still a relatively small amount, though perhaps realistic, considering that Canadian advisors and investors are, in the main, still somewhat conservative and reluctant to embrace new ideas like SRI. Still, it’s clear change is in the air and for Whipp, that’s an exciting development and an opportunity for advisors, particularly new advisors who are looking for a way to differentiate themselves from the competition.

“It’s going to take some time, and maybe some advisors will end up losing some business before they recognize that this is real. It’s not just about hugging trees,” he says. “There is a link here and advisors have to start paying attention.”

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(08/07/07)

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