Advisors Must Embrace ESG or Risk Losing Clients, a Top Merrill Advisor Says

Environmental, social and governance investing is controversial, with many advisors simply dismissing the funds as underperforming investments. Meantime, ESG investing is growing at a rapid clip: Some expect these assets to climb to $1 trillion by 2030.

Raj Sharma, a top Merrill Lynch private wealth advisor whose group has $6 billion in assets under management, argues that “advisors who fail to understand and embrace the ESG paradigm risk losing market share and clients,” in an interview with ThinkAdvisor.

Though ESG “seems like a trend today, it will be ubiquitous tomorrow,” he forecasts.

ESG “resonates” with millennial and Generation Z values. “Advisors need to understand ESG so that if they have a client with a strong interest in investing according to their value system, they’re ready for it,” Sharma adds.

The founder of The Sharma Group has been with Merrill for more than 35 years, starting at the firm in 1987, seven years after he emigrated to the U.S. from his native India.

Over the decades, he has built, in the words of Andy Sieg, Merrill Lynch president, “a phenomenally successful advisory business.”

A member of Barron’s Hall of Fame and one of Forbes’ Top 100 Wealth Advisors, Sharma heads a team of 18 in Boston that works mainly with entrepreneurs, or, as he calls them, “wealth creators.” His minimum is $10 million.

The financial advisor captures his longtime advisory experience and philosophy in his new book, “The Purposeful Wealth Advisor: How to Build a Rewarding Career While Helping Clients Achieve Their Dreams,” for which Sieg wrote the foreword.

The practical guide, enhanced by Sharma’s personal spin, takes readers through everything from establishing a unique brand to incubating new clients to getting through crises to reasons for advisor failure.

In the interview, he opines: “This is a lucrative business, but it’s got to be driven by a larger mission … Purpose is about really having an impact on people, enriching your clients’ lives, providing them with peace of mind and allaying fears and concerns.”

He started out in India in sales, marketing and finance. Arriving in the U.S. to pursue a career in media, he picked up a second master’s degree — from Emerson College — and worked in film and video production.

He changed courses to become a financial advisor when his own broker told him it was a profession for which he was well suited.

ThinkAdvisor recently interviewed Sharma, speaking by phone from his home office in suburban Boston.

He busts the “myth” that to do well in the business, financial advisors must be aggressive salespeople. His style has always been different:

“If you present yourself as a resource, people are far more comfortable than if you’re trying to sell them something. You don’t have to be the proverbial car salesman to close a sale,” he says.

Here are highlights of our conversation:

THINKADVISOR: “Advisors who fail to embrace the ESG paradigm risk losing market share. Today ESG might be a trend, but tomorrow it will be a tsunami,” you write. Why?

RAJ SHARMA: ESG is very similar to financial planning in the 1990s: It seems like a trend today, but it will be ubiquitous tomorrow.

Many of the so-called stockbrokers in the ’90s who embraced financial planning became successful, and financial planning became a very important cornerstone of the business.

To be successful in the ESG space, advisors need to understand what ESG is so that if you have a client who has a strong interest in investing according to their value system, you’re ready for it.

It’s a generational change. The millennials and Generation Z are very different from the baby boomers or people who are older than that.

They’re much more progressive in their thinking. ESG resonates with their values.

Are your current clients expressing much interest in ESG?

They very much are. That’s coming from the next generation. They’ll say, “What’s your ESG strategy?” and, “Tell me about the ESG platform at Merrill Lynch.”

“Family dynamics is the emerging new frontier for advisors,” you write. Please explain.

Family dynamics is understanding the [entire] family and crafting a set of strategies to make sure it’s strong and independent.

Many wealthy parents say, “I’m not going to tell my children [how much money we have] because they may lose the desire to compete and become too comfortable.”

But if you’re a wealthy parent and your ultimate goal is to make sure your kids like each other [after your death], don’t keep them from knowing about your wealth.

The best families we work with are very transparent with their children about their wealth and strategies. It binds everybody together and prevents future misunderstanding that one kid is favored, for example.

You write that “great advisors must be rainmakers,” but you also say financial advisors needn’t be aggressive salespeople. Please explain.

A rainmaker is someone who’s not afraid to prospect — to reach out to new people. I’ve always felt that if you present yourself as a resource, people are far more comfortable than if you’re trying to sell them something.

If you talk about best practices and the things you address with your clients — how you take care of things for them and give examples of your firm as a resource, people will find your message compelling and will sign on as clients.

You don’t have to try to call them 10 times and be persistent in a salesman kind of way.

If you can convey a strong value proposition and a message that resonates, you don’t have to be the proverbial car salesman trying to close a sale.

Having a larger purpose is “the North Star that shapes [the advisor’s] identity and brand,” you write. Why is purpose so important and powerful?

If you think of being a financial advisor as just another job to make a living, I don’t believe you can have a big impact.

Purpose is larger than just your ambitions. It’s about really having an impact on people, enriching your clients’ lives, providing them with peace of mind and allaying fears and concerns.

This is a lucrative business, but it’s got to be driven by a larger mission and a sense of purpose.

You write that growth should always be a priority. You raised your minimum to $10 million, and that resulted in dramatic growth. Please discuss.

I wanted to limit the number of clients I had because I was afraid I’d be stretched too thin and not be able to care for any one of them in a very comprehensive fashion and give them full attention.

So by raising your minimum, you’re also narrowing your potential universe of clients.