Understanding client values builds deeper relationships

Impact investing can be a way for advisers to initiate more meaningful conversations

Aug 21, 2018 @ 12:50 pm

By Todd C. Giessler

Often when advisers meet with clients or prospects, they spend the majority of the time discussing portfolio construction, risk-adjusted rates of return and other minutiae that make the average person's eyes glaze over. Since technology has allowed much of that work to be automated and almost commoditized, advisers are likely much better off using meeting time getting to know their clients on a more personal level. Understanding what actually motivates the client can help advisers provide real and meaningful advice to help them meet their long-term personal and financial goals.

Impact investing is one topic that a growing number of advisers have found for initiating deeper and more meaningful conversations with clients. Whether it's called socially responsible investing, morally responsible investing, ESG, or some other descriptor, it may not be for everyone.

Interest from investors, as shown by inflows to impact investing strategies, is large and definitely growing. According to figures published by the Forum for Sustainable and Responsible Investment, "from 2014 to 2016, professionally managed assets engaged in SRI strategies grew from $6.57 trillion to $8.72 trillion and now account for one out of every five dollars under professional management" in the U.S.

When advisers and clients talk about things that really matter rather than what's in the portfolio and the current state of the market, it sets up a much different kind of relationship. A conversation about how one aligns their beliefs with their financial portfolio is much more intimate and personal than one about the capabilities of different money managers or their investment strategies.

(More: Is ESG investing going mainstream?)

What Kind of Impact?

The first thing to understand about impact investing is that it's an umbrella term encompassing a wide range of investment strategies using many different types of screens (social, environmental, moral, etc.). The key for the adviser is to determine from client conversations what type of screen is going to connect with that particular client or prospect. Some clients are going to be motivated by concerns for the environment, others by moral opposition to abortion. It's important to direct this conversation in a way that makes it clear what issues are most important to the client, what their beliefs are, and how closely they would like their portfolio to mirror their values.

As mentioned earlier, not every client is going to be interested in adding a moral or ethical dimension to his or her investing. But if advisers never raise the subject, they'll never know. And even when the client has no interest in impact investing, it's still a conversation that can provide valuable insights into what does motivate that client.

Once advisers have determined what is most important to the client, they can construct the portfolios accordingly. An impact investing conversation can change the depth of the relationship because it gets the client to buy into the portfolio (and the relationship with the adviser) with their heart as well as their brain. This combination of cerebral and heartfelt action that the adviser and client have initiated together can forge a much closer and longer-lasting mutual bond.

(More: Break the sustainable-investing bottleneck)

That kind of relationship, combining the head and the heart, can better withstand the market hiccups that any portfolio is bound to experience over time. After a day when the markets have had a huge drop, investors whose portfolios are founded on their core beliefs will be better able to hold on because their investments are based on more than short-term market performance. They're invested for the long haul.

Building these deeper relationships with clients can go a long way toward making client assets stickier. And getting on the same wavelength as a client in terms of social and moral issues can open up the door for referrals to others who feel the same way.

Having these conversations with millennial clients can be even more important for the long-term success of the adviser's business because millennials represent the future. It's been estimated that over the next few decades, some $30 trillion in wealth will be transferred, with the bulk of it going to millennials. And although millennials are stereotyped as technology-obsessed, according to J.D. Power, when it comes to their financial business, what they are looking for is establishing great relationships and human, goals-based advice. Among millennials with more than $100,000 in investible assets, almost a third say they would like to have more contact with their financial advisers, compared with just 7% of older investors. Further, millennials are often passionate about their causes and belief systems.

It's obvious that a growing number of investors, particularly millennials, want their investments to have a positive impact. They want to work with financial advisers who understand their personal values and interests and know how to align them with investment strategies. The demand for impact investing, in all of its many forms, shows no sign of diminishing. The first step toward being part of this movement is understanding what is most important to your clients. So, if you don't already know, make sure you find out. Asking "What are you passionate about?" is a great place to start.

(More: Adviser education key to solving 'ESG paradox')

Todd C. Giessler is the director of advisory services for the Ave Maria Mutual Funds, the largest family of Catholic mutual funds in the U.S. with over $2.1 billion in assets under management.


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