Concerned that advisors aren’t talking to their clients about socially responsible investing, the Social Investment Organization will push for rules mandating advisors to ask about a client’s interest in SRI.
The SRI question could be part of the process to open new accounts with clients or part of the annual review, says SIO executive director Eugene Ellmen.
“We want to have a fuller discussion with IIROC and MFDA on this and put the issue squarely on the table,” Ellmen said in an interview, adding that simply encouraging advisors to ask the question isn’t enough.
“Without mandating it, it’s going to be difficult to convey to advisors that this is something important for them to take up with their clients. It’s not going to be heavy handed; we’re not forcing advisors to push SRI on their clients in any way.”
The SIO first raised this issue in 2010, as part of a submission to IIROC’s client relationship model consultations. IIROC responded by stating that environmental, social and governance (ESG) issues are considerations in determining investment objectives, “an existing required consideration in the rules.”
“IIROC took the position that it’s not necessary to explicitly call on advisors to ask about ESG issues,” Ellmen says. “Our view is that advisors simply are not having this conversation with their clients in spite of the demonstrated demand from clients.”
Ellmen says the social values of a client are fundamentally part of the suitability of an investment, ranking these considerations with risk tolerance and investment horizon.”
“If they don’t ask the question, they could be recommending unsuitable investments. It’s in the client’s interest; it’s in the advisor’s interest to do this.”
Ellmen points to other countries which have successfully regulated SRI client inquiries, notably Australia. “They have mandated advisors to look at this for quite some time, and advisors don’t have a problem with it. In fact, it’s part of the reason Australia is a world leader in SRI.”
Gary Godard, a senior vice-president with National Bank Financial in Calgary, says he supports the SIO’s campaign, but doesn’t expect any regulatory changes in the near future. ”I don’t believe it’s up to the regulators to define what constitutes social or ethical considerations. I think the dealers have to take the first step,” he says.
Godard includes the SRI question in clients’ investment policy statements, estimating that he gets a positive response seven times out of ten. “It’s a best practice for advisors to make those reasonable enquiries.”
Ellmen notes that some dealers mandate the SRI inquiry already, such as QTrade and Credential. “From discussions I’ve had with [their] advisors, it’s not an issue, in fact it’s helpful. What we’re asking is that the kind of questions that QTrade and Credential put in their KYC should be mandated across the board.”
As well as discussions with regulators, the SIO plans to reach out to advisors with courses through Advocis and the development of an online course. “We’re also planning on getting out to some financial planning conferences this year to talk about advisor education and the mandated inquiry rule.”
Doug Watt is an Ottawa-based writer and editor and co-founder of SRI Monitor, a blog on socially responsible investing.