Investing with a conscience can build client trust
Can you afford to ignore socially responsible investing? Investors put more than $1 trillion into socially and environmentally responsible portfolios in 1999.
This figure was up from $639 billion in 1995, and flows into socially responsible funds are growing faster than the market.
Research suggests that this is only the tip of the iceberg: 51 million Americans care deeply about corporate responsibility, and every one of them is a potential mutual fund investor.
Who are these individuals? Your best customers and prospects.
Studies show that such investors tend to be well-educated, affluent and in their prime earning years. And, studies show that you, as a financial adviser, can actually improve your relationships with key customers by offering socially responsible options.
A recent survey on investor attitudes sponsored by Calvert Group shows investors place greater trust in financial advisers who recommend socially responsible investments. More than half of all respondents described advisers who recommend socially responsible funds as “someone you can trust” (55%) and “someone you feel comfortable working with” (52%).
In addition, three-fourths said their advisers should know about their interest in socially responsible investing before making recommendations to them. The results were reported in Yankelovich Partners’ April 1999 study, “Attitudes toward socially responsible investing,” a follow-up to its 1996 survey on the same topic.
Yet despite these compelling findings, financial planners and advisers are making only limited use of the opportunities socially responsible investing presents.
A separate study showed that three-quarters of brokers who had sold socially responsible mutual funds said that they were responding to an idea initiated by a client, while only about one-fifth said that they had proactively introduced the concept. Only about one-tenth of these brokers’ clients had social investments in their portfolios — and 15% of brokers had no clients who did such investing.
Some brokers we’ve surveyed reported that they had concerns about relative returns offered by socially responsible funds. Yet in fact, recent research shows that investors need not sacrifice returns in their search for investments that fit their personal values.
All these facts point to a startling conclusion: There is a vast demand for socially responsible investments among affluent, educated investors, and, to date, very few financial planners are meeting it.
You can tap into this vast unexplored market simply by asking the right questions. Do you understand how your clients and prospects feel about smoking, the environment, and gender and racial equity? Simply including these questions in your profiling questionnaire shows you to be a person of vision and conviction — precisely the kind of person these investors want to do business with.
Once you’ve identified people who may be interested in social issues, you can offer to analyze their existing portfolio for stocks that may not represent their issues. Calvert Group’s website at www.calvert.com has a “Know What You Own” feature that identifies tobacco stocks, arms manufacturers, environmental offenders and other objectionable stocks in more than 8,000 mutual funds.
By performing this service for clients, you can gain an in-depth understanding of their total portfolio holdings and put yourself on a strong footing for recommending alternative or additional investments.
You will probably find that your customers are surprised by some of the stocks they hold in their existing mutual fund portfolios. Our 1998 survey showed that only 37% of all investors could name a single stock in any of the mutual funds they own. Two-thirds of all investors do not know whether their funds hold tobacco stocks. Yet many, once informed, are concerned and ready to act.
You can use this moment of recognition to open a dialogue about the many socially responsible options available. This can increase the trust you build with clients and lead to an increasing role in their financial affairs.
Many financial planners find that selling socially responsible funds fits well with their own value systems, mirroring their own concerns about the environment, human rights and gender equity. Yet beyond that, it’s good business. It builds a bridge to new customers and strengthens relationships with old ones. And it’s an untapped market.
Ms. Krumsiek is chief executive officer of Calvert Group Inc. in Bethesda, Md., the nation’s leading marketer of socially responsible mutual funds.
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