In the United States alone, $84 trillion in financial assets are expected to be passed on to Millennials and Gen Z between today and 2045, $16 trillion of which will change hands within the next 10 years.
This phenomenon has serious implications for financial advisors. Unlike their parents, this younger generation of investors is highly interested in sustainable investments. According to a 2021 report by Morgan Stanley Institute for Sustainable Investing, 99% of American Millennials are interested in sustainable investing.
In Canada, Millennials and Gen Z are also highly interested in sustainable investing. According to the RIA (Responsible Investment Association), 70% of Canadian investors aged 18-34 and 72% of investors aged 35 to 54 are interested in sustainable investment products compared to a much lower 51% for those over 55 of age 2.
Yet today, only 31% of financial advisors engage with their clients on sustainable investments. This disconnect is likely to have material financial implications for advisors failing to engage on or offer investment options to their clients.
As assets move hands from parents to children, financial advisors lacking sustainable investing knowledge are likely to experience a steady attrition in ESG sensitive financial assets.
As demonstrated in the chart below, a mere 2.5% assets attrition rate a year (due to loss of ESG sensitive assets4) on a $10M in AUM would lead to a 23% decline in annual advisory fees, or $44,000 in lost yearly earnings within 10 years ($206,782 in cumulative earnings loss over 10 years) - assuming 1% in MER and 7% annual returns for the underlying clients’ investment accounts. At the firm level, lost earnings would amount to over $20M over 10 years for a wealth advisory with $1B in assets.
Financial advisors failing to familiarize themselves with sustainable finance will increasingly find themselves at a competitive disadvantage to their ESG-conversant peers. Financial advisors interested in addressing this knowledge gap are welcome to contact ED4S (hi@ed4s.org) to learn about ESG capacity-building options that fits their needs.
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