At the recent ESG for Impact! Conference, I led a workshop with Sylvia Panek of Natural Investments on different techniques advisors can use to discover their clients’ values.
The motivation was to help advisors solve one of the biggest challenges they’re facing in values-aligned investing: personalization. Because ESG can mean so many things to different people, it’s imperative for advisors to understand what clients are looking for when they want to align their investments with their values. One of the biggest fears advisors have is offending clients by assuming their values. Advisors are aware of the danger of, for example, touting a weapons-free portfolio to a gun owner.
To run an experiment on the best ways for advisors to personalize ESG, we had folks participate in a role-playing game. Sylvia went around the room and had advisors grab three cards from a hat, each with a particular social value. Everyone took turns asking rounds of questions to try to guess the values held by the other person.
Over the course of three rounds, participants tried out different techniques for asking questions.
1. An array of investment-oriented yes-or-no questions
2. General conversation about their background
3. Behavioral questions
For the first technique, participants could choose questions from a comprehensive list of values to ask the “client”. For example:
- “Do you want to avoid fossil fuels?”
- “Do you want to avoid companies without women on their Board?”
- “Do you want to avoid nuclear energy?”
Like the classic game of Battleship, participants fired away their 20 questions, hoping to land a match.
In the real world, this technique is somewhat common for customized portfolios — the investment advisor may hand a client a long list of options to review and configure. This works when the client is sophisticated to the extent that they know all the issues and can offer opinions on each. To laypeople, however, this approach can seem overwhelming and impersonal. At the end of the round, few participants had “landed a hit” of discovering their partner’s closely held values.
Here, participants were instructed to strike up a general conversation without any particular focus. By asking the “client” about their life story and background, they intended to gather a holistic picture of the person, from which they might be able to infer values. In other words, this technique was “no technique.”
In the real world, this technique is the most common way that advisors use to discover their clients’ values - without the use of a tool. We found that this was a fun exercise for participants, but at the end they did not rate it as particularly effective. People may have come up with interesting backstories to discuss, but the conversations meandered without arriving at the destination.
For the last session, we offered a range of normative statements to participants, where the “client” could indicate how strongly they agree or disagree with the statement. Examples included:
- Do they eat meat?
- Should employers pay employees a living wage, even if that means employing fewer people?
- Should society prioritize solving issues like healthcare and education before addressing climate change?
These questions prompted substantive conversations. The “client” typically justified their level of agreement in a way that revealed their values. Even when the question didn’t land on the values, the conversation gave the “advisor” an indication of where to go next, in contrast to what participants called the more “robotic” yes-or-no question technique from the first round. In the real world, this technique is used to introduce clients to values-based investing through Myers-Briggs style behavioral questionnaires, similar to the most popular risk-tolerance questionnaires.
Overall Feedback and Results
We had participants rate the effectiveness of each technique from 1-3 at the end of each round, and then describe their feedback at the very end of the session.
The proof is in the whiteboard - the yes/no and general conversation techniques were rated mostly ineffective, while the behavioral technique was rated very effective.
Overall, the yes/no approach seemed impersonal, and the answers to the questions didn’t really flesh out an understanding of the person. The general approach was deemed too unreliable; while some extroverted clients may volunteer the relevant information, shy folks would result in stilted conversations, neither fun nor informative.
The behavioral approach worked well, especially as a starting point. Participants were able to get a good sense of the other person’s values. After going through the motions, they were excited to then refine the answers into specific values. Everyone imagined this forming a part of a greater sustainable investment process. While a dozen folks in a workshop does not constitute a robust randomized control, the feedback seemed very clear. Behavioral ESG questions were the most effective, despite the fact that general conversations and menu-based binary questions are the most common.
Of course, we never told participants that the behavioral questions were from the YourStake ESG Personality Types questionnaire, until the very end. And the results confirmed what we heard from our hundreds of conversations with advisors, and 9 months of advisor focus groups - the YourStake questionnaire provides advisors with the opportunity to introduce clients to ESG without fear of offending, listen to what their clients really care about, and map client values to actionable next steps with reporting and portfolio construction.