By Mike Faloon
As a financial advisor, you tend to build a deep connection with your clients. Over the years, you learn more about what drives them and the type of legacy they want to leave behind. For many of your clients, the relationship they share with you—and their approach to their portfolio—extends beyond mere monetary return on investment.
This is especially true of the increasingly prevalent client demographic: millennials. Over the next 30 to 40 years, $30 trillion in financial and non-financial assets is expected to pass from baby boomers to their millennial heirs. Much has been written of the latter cohort’s characteristics and preferences in recent years, but one finding is relatively consistent: millennials like to align their investments with their personal values.
Contrary to the increasingly outdated notion that impact investing compromises portfolio performance, we believe values and returns can coexist happily. You can empower your clients to fight climate change, create affordable housing and develop clean energy while providing market returns. More importantly, impact investing can help create stronger and more resilient cities for future generations—redefining the very meaning of long-term returns.
As your clients plan for the future, one of their overarching priorities will be how best to create a robust succession plan that reflects their values and priorities. Subsequently, how you help them handle the transfer of intergenerational wealth should be a key performance indicator for your practice.
Take a moment to think of your clients. If the wealth transferred to your millennials today, would your investment process have to change to meet their needs? Do you have the right message to guide them in orienting their portfolio around impact? Here are four steps you can take to ensure you have the right impact message ready for your clients.
- Listen and Shape. Define your impact mandates. Begin by determining, and defining, what’s impactful to your client. If you could find the right balance of financial returns and positive impact, what causes would you support? We find that local investment opportunities resonate strongly with many clients, allowing them to make a tangible impact in their own communities. For example, supporting the local fire department by investing in a municipal bond offering.
- Be Ready to Navigate. Turning your clients’ priorities into credit selection means you need a framework to build around. One pathway that is gaining ground is using the UN Sustainable Development Goals, known as UN SDGs, to categorize opportunities. Given the challenge of evaluating an investment relative to all 17 UN SDGs, advisors should focus on a select group or specific themes within a cohort of the UN SDGs.
- Make Access Tangible. Access to impact investments is often viewed as challenging for investors, but this needn’t be the case. Depending on risk profile, there’s a variety of ways to secure exposure for individual investors: ETFs, mutual funds, stocks and the “original impact investment,” the municipal bond. Take the time to clearly outline how access works by building an example portfolio to show clients. A tangible example will help clients visualize what impact investing will look like within their portfolio.
- Start the Education Process. Advisors that are able to provide actionable insights can differentiate themselves when looking to support multigenerational wealth. The value created by impact investing has been proven by various researchers, but for many clients this may be a new concept and they will need time to understand/adjust their expectations. If your clients have inquired about impact, that’s a great opportunity to start the education process. And it’s a two-way process—as your clients tell you about what matters to them, you’ll learn more about how impact can inform and expand your practice.
Mike Faloon is Neighborly’s Chief Strategy Officer.