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Sonya Dreizler Wyckoff-Tweedie Photography
Sonya Dreizler

To Their Detriment, Advisors Are Holding Back Impact Investments

Advisors need to pitch impact investing to their clients before other wealth managers do.

To their detriment, financial advisors are holding back impact investing by not educating clients about the opportunities, according to two speakers at Morningstar's annual investment conference in Chicago.

“Most clients are not going to bring this up. You’re going to have to bring this up,” said Sonya Dreizler, a former president of an independent broker/dealer who now consults wealth managers on impact investments. “There is plenty of product...where I see the bottleneck is that advisors aren’t asking clients if they are interested."

There are more than enough stocks, bonds, notes and private placement opportunities available to build impact investment portfolios for retail investors without taking on unwanted risk, or sacrificing returns, Dreizler said. 

Advisors who aren't asking might also be at-risk of losing clients, according to Anna Snider, the head of Due Diligence for the Global Wealth and Investment Management CIO Office at Merrill Lynch. "We've seen it happen."

"Every major firm" is looking into impact investments, creating tools to evaluate them, and has advisors specialized in building portfolios, Snider said.

There are many flavors of impact investing and pitching it to clients doesn't have to mean a wholesale change for their portfolio. But depending on an investor's preferences, it can still be challenging.

Using municipal bonds to support specific communities or projects is a straightforward request. A portfolio that will positively impact the climate could require more due diligence and research on the part of their advisor. A narrower focus is hard to accommodate.

Impacting investing with a "gender lens" or in a way that supports woman, remains more challenging than other strategies, according to Dreizler and Snider.

For example, making a private investment in a business owned by a woman could fulfill that investors. But Snider said there is a lack of data showing women's participation in corporate boards, managerial positions. It's also difficult to quantify the impact a company environment or mission is having on women.

A possible workaround for some clients might be to invest money with only fund managers who are women, but they represent a small portion of managers, Snider said.

One attendee said she was disappointed the discussion didn't focus more on supporting minorities. Dreizler and Snider agreed that it's a topic that needs to be discussed more when people talk about impact investing.

“You bring up a good point," Dreizler said. "I think that white folks, especially in a field like financial services, have a really hard time talking about race.”

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