ESG investing: Regulation meets customer demand – 3 aixigo features to boost your wealth management

ESG, which encompasses environmental and social values that influence customers' willingness to invest and their investment behaviour, is a decidedly current topic. The interest in sustainable investments is growing rapidly! According to Morningstar, funds that used ESG principles captured $51.1 billion of net new money from investors in 2020. Also, the number of advisers having ESG-related conversations with customers rose 2 percent between October 2020 and March 2021, according to the NextWealth ESG Tracker Study. As a result, 2020 is considered a record year for the investment volume in sustainable funds and ETFs.

Additionally, new regulations, such as the Sustainable Finance Disclosure Regulation (SFDR) or a proposed amendment to the suitability test of MiFID II, are increasing the pressure on financial services providers. Therefore, ESG is driven by increasing customer demand, and likewise the regulatory obligations increase.

For financial services providers, it will be crucial to not only implement necessary regulatory requirements, but to broaden their scope to embrace the contemporary mindset of sustainability and focus even more on the customer's need. But even for wealth managers, ESG opens up a lot of new opportunities:

  • Secure a competitive advantage: Financial services providers who are already one step ahead today and implement solutions that are not yet required by regulation (but are likely to come) and empower customers to invest according to their values will benefit from a competitive advantage.
  • Position as a financial coach: Ensuring transparency on ESG issues towards the customer is essential. If financial services providers successfully manage to provide professional 360-degree advice – from the initial assessment of preferences, all the way to deriving a suitable recommendation, and finally pointing out the investment's impact – they facilitate the customer's entry into this new topic and can prove themselves as a financial coach for the customer!
  • Emotionalise the service: There is almost no other topic where emotional values play such an important role as in sustainable investing. If the portfolio mirrors the customer's values, the outcome is a truly individual and transparent service.

Even though ESG – as a relatively new topic for providers and customers – comes with some challenges, such as ensuring data quality and mastering increased complexity, financial services providers should take a proactive approach, take action early and seize the opportunities that this "new" market offers. The following solutions of aixigo's Wealth Management Platform allow you to seize the opportunities of this new market:

  • Next Level Monitoring and Rebalancing: If ESG criteria are to be incorporated, both monitoring and rebalancing become much more complex, resulting in a significantly increased workload, especially when dealing with many portfolios. aixigo's Wealth Management Platform enables the automation of these portfolio management processes and the inclusion of all ESG KPIs relevant to the financial services provider, the regulator or the customer from a variety of data providers.
  • Next Level Reporting: ESG increases the complexity and scope of reporting, as information has to be gathered from various data points and prepared in a comprehensible manner. aixigo's Wealth Management Platform allows these requirements to be met and make the customer's ESG engagement tangible in an ESG Footprint report – which, thanks to aixigo's easy-to-integrate APIs, can be distributed via any channel.
  • News Feed Impact Investing: ESG-affine customers have a strong interest in social or environmental issues and want to "make a difference" with their investments. Our timeline module – a customised newsfeed – offers added value to the customer by continuously providing him with information and curated content on the "impact" of his investments.

If you would like to find out which further modules aixigo's Wealth Management Platform offers, allowing you to seize the opportunities of this new market, take a look at Christian Neuenhaus' article in The Wealth Mosaics' new WealthTech Views Report "The rise of ESG in Wealth Management". The complete The Wealth Mosaic report is available here.

To summarise, there are many opportunities arising from ESG to position yourself as an expert in wealth management. If financial services providers take this chance, they will gain a competitive advantage, prove their expertise, and increase their profits!

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