Financial advisors are constantly looking for ways to acquire new clients while strengthening existing client relationships. With markets at all time highs, advisors need to defend the value they provide. Building a resilient advisory practice is challenging but for those willing to listen to the changing needs of individual investors the opportunities are plentiful. At Neighborly, we believe impact investing is the key for financial advisors who are looking to strengthen existing client relationships and obtain new clients who want to do well by doing good.
Why Impact Investing Should Matter to Advisors
The Annual Survey of the Global Impact Investing Network showed that the size of the global impact investing market doubled in the last year, from $114 billion in assets to $228 billion.
Much of this growth is being fueled by a few key demographics that advisors should be actively engaging:
Millennials: 77% of millennials have portfolios that include ESG (Environmental, Social and Governance) and/or impact investments in their portfolio.
Women: The growing influence of women will be critical for advisors looking to adapt their practice. Women currently control about $14 trillion in assets. In the coming years that number will increase to a minimum of $22 trillion.
High Net Worth Individuals: 40% of high-net-worth investors surveyed by U.S. Trust either own or invest in companies with a strong environmental, social and governance (ESG) track records.
How to Acquire and Retain Clients
Advisors can grow their client base through impact adoption — in other words, by having impact investing conversations and creating portfolios that fit the unique needs of the critical millennial and female demographics.
It’s also worth engaging households through wealth transfer conversations — 66% of children fire their parents' financial advisor after they inherit wealth. Most advisors meet with their clients children less than once a year. Authentic and meaningful family conversations around impact investing can create a level of trust and reduce attrition, creating relationships that last from one generation to the next.
Most client relationships are judged by three key metrics: returns, fees and the ability to navigate volatility. Adding “values” as a metric creates an opportunity for advisors to understand and retain clients by building portfolios that suit their changing needs, interests and impact goals.
In addition, ESG considerations and Impact investing are about more than just making a positive impact on environmental and social issues; even more frequently overlooked than the role ESG factors play in a community’s quality of life is the role they play in managing risk in investment portfolios. Advisors can establish stronger risk metrics by assessing and evaluating companies on key ESG factors. While traditional investment analysis has paid little attention to these non-financial sources of risk, failure to integrate analysis of ESG factors into the investment decision-making process overlooks their potential effect on investment performance, particularly over the long term.
The Impact Pioneers
There are a number of advisors and asset managers currently using impact adoption to differentiate themselves from the competition in order to attract clients. Here are a handful of the ones we’re watching.
Gitterman Wealth Management based in New York City and Edison NJ, is a leader in the Sustainable, Impact, and ESG Investing space, and offers Sustainable Investing services for individuals, as well as research, education and investing services for financial advisors.
Clean Yield based in Burlington Vermont, helps clients meet their long-term financial goals while making a positive difference in the world. They build custom portfolios that actively channel investment dollars toward developing a more just and environmentally sustainable economy.
Ethic Investments based in New York City, is an investment manager that creates sustainable equity portfolios for RIAs. They help you create returns-driven, tax-efficient sustainable equity portfolios that align with your overall allocation strategy.
Ellevest, launched by Former Wall Street executive Sallie Krawcheck in 2016, is a digital investing platform built for women by women. Ellevest takes into account the established facts on how women's financial experiences differ from men's: longer lifespans, different salary arcs and the possibility of extended time off from work. Ellevest’s Impact approach then adds investments focused on making a positive impact for women.
Caprock Group, serving families and foundations across the country, is helping clients use the capital markets to help the planet and/or champion a social causes they care about. They have deployed approximately $1 billion in impact-oriented capital across every asset class.