Advisers ignore 'responsible investing' at their own risk

Women, millennials and those worth at least $10 million are the biggest fans of SRI or ESG strategies, says Nuveen's Marcus Valesco

Nov 17, 2017 @ 12:22 pm

By Jeff Benjamin

Financial advisers might be missing a big asset-gathering and client-satisfaction opportunity if they aren't familiar with the nuances of "responsible investing" trends, according to Marcus Valesco, managing director in the Wealth Management Services Group at Nuveen Investments.

Speaking Friday morning in Chicago at the Charles Schwab IMPACT conference, Mr. Valesco pointed out that most of Europe as well as U.S. institutional investors are way ahead of most financial advisers when it comes to allocating to social and environmental investment categories.

"Everything starts in the institutional space, but responsible investing will eventually become almost an expectation from the retail space," he said.


Cutting through the myriad phrases and acronyms that have come to encompass investment strategies with screens for everything from religious to corporate governance issues, Mr. Valesco prefers to just call it responsible investing. But it is too soon to tell if the rest of the wealth management industry will follow suit and stop using terms such as sustainable investing, impact investing, socially responsible investing and ethical investing.

(More: Yes, impact investing can be profitable.)

By his calculations, there is $8.7 trillion in the U.S. currently invested through some kind of responsible investing screen.

"We see institutional investors with 25% to 30% allocated to responsible investing, but we don't see those allocations by financial advisers," he said.


Mr. Valesco believes part of the reason more advisers aren't embracing responsible investing is because they don't think their clients are interested.

But, according to his research, women, millennials and individuals with at least $10 million of net worth are the biggest fans of social, environmental and governance investment strategies.

His research showed that 15% of women investors are currently allocated to responsible investments, and that 38% are interested in the category. Among millennials, 28% are currently invested and 57% are interested. The high-net-worth group is 27% invested, and 31% are interested.

Financial advisers might be missing the message of potential interest from clients because they aren't having the right kinds of conversations with them, Mr. Valesco said.

"Do your clients go fishing and hunting, do they have charitable interests?" he said. "That shows you what their interests are. It's about the phrasing in the conversations."


In terms of off-the-shelf products, Mr. Valesco counts 200 mutual funds and 50 ETFs that are dedicated to responsible investing causes and subcategories. "There are funds and fund companies focusing exclusively on this space, but I have yet to see an adviser do that," he said.

(More: Millennials, women drive assets to ESG strategies.)

According to his research, 74% of investors say they are more likely to work with an adviser who generates positive returns from investments that also make a positive impact on society, and 69% say they are more likely to stay with an adviser who could discuss responsible investing.

Among millennials, 87% say they are more likely to stay with an adviser who can discuss responsible investing. Yet, 61% of investors say their financial adviser has never discussed responsible investing with them.

"Financial advisers need to understand the demand, then get rid of the acronyms and just talk to your clients about what they care about," Mr. Valesco said.


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