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Enthusiasm for SRI Is Driving Changes In Wealth Management Units

Clients want socially responsible investing options, and the broker/dealers see opportunities in meeting that demand.

Growing enthusiasm for socially responsible investing is driving changes in the wealth management units of the large broker/dealers.

At The Economist’s Impact Investing conference last week, Andy Sieg, the new leader of Bank of America’s Merrill Lynch Wealth Management said the “herd”—a moniker for the firm's network of more than 15,000 advisors—has never been as interested in socially responsible investing as it is now.

In years past, few Merrill advisors would attend a breakout session for impact investments at the firm’s annual education conference. That’s no longer the case.

“We’re to the point that it's standing room only,” said Keith Banks, president of U.S. Trust and head of Bank of America’s Chief Investment Office and Investment Solutions Group. “The big drive there, when it really comes down to it, is the client.”

An increasing number of wealth management clients don’t just care about investment returns. They also want the moral compasses of the companies they invest in to align with theirs, and wealth management businesses are listening, for fear clients will take their money elsewhere.

In addition to Merrill Lynch and U.S. Trust, wealth managers and analysts from Wells Fargo, RBC and J.P. Morgan said client demand is spurring changes in their respective wealth management units.

Ultra-high-net-worth individuals have long wanted to partake in impact investing. An external survey by U.S. Trust found 40 percent of wealthy individuals, who generally had $3 million or more in investible assets, were interested in socially responsible investing.

Only recently has the broad wealth management client base begun pushing for impact investments. Twice as many Merrill Lynch advisors (17 percent) use five or more impact investment products in client portfolios than they did three years ago, according to a Merrill Lynch spokesperson. 

J.P. Morgan Private Bank has created five distinct investment approaches for clients who want their definition of social responsibility to steer their portfolio's strategy, Monica Issar, the global head of J.P. Morgan Endowments and Foundations Group, said in an email. Within those approaches, she added, there are degrees of allocation that range from carving out a specific part of a portfolio to be socially conscious to a broad application across all asset classes. Other wealth management units have taken similar steps to assist their advisors in educating clients on impact investments and helping them achieve their financial goals within the boundaries of their ethics. 

B/d's said the aging millennial generation is driving the demand for impact investment products and portfolios.

“There’s no question that millennials are particularly interested in this,” said Arline Segal, a vice president and advisor at RBC Wealth Management. “I have plenty of clients that are older, but I’d say the younger ones, many feel extremely strongly about things like climate change.

“I’ve been doing this for along time,” Segal said, who has made socially responsible investing the focus of her advisory practice for the last 20 years. She said the last two or three years have been different. Now, other advisors are coming to her with questions about impact investing so they can better serve their clientele.

Like other b/d's that have bolstered their sustainable, responsible and impact (SRI) investment product offerings, Segal said RBC Wealth Management added environmental, social and governance (ESG) funds to each of their categories to better serve clients.

“I just want investors to know that there are tremendous resources available now,” Segal said. “It’s [an entirely] different world than it was even five years ago.”

An Asset Class With Room to Grow

The impact investment asset class is still relatively small. Assets under management that consider ESG criteria grew from $1.4 trillion in 2012 to more than $8 trillion in 2016, according to the US SIF Foundation.

The consensus among wealth management units is that the growth will continue into the foreseeable future and overtake others, especially carbon fuels. A McKinsey Global Institute study found wind and solar PV could overtake coal and gas energy as soon as 2035.

Availability of impact investment products is still lagging behind client demand, according to Claire Veuthey, a senior research analyst for Wells Fargo Private Bank’s Social Impact Investing group.

She said, for that reason, “the push for changes within wealth has been both from the bottom and top."

B/d's see the potential in the millennial generation’s size and wealth, which has prompted changes in tandem with the client demand.


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