Fee pressure. Growing the business. Hiring a great team. Managing (or turning away) small accounts. The
landscape of financial advice has changed
dramatically in the last decade with the
advent of technology solutions, proliferation of free financial advice, and growth
of the millennial population to a third
of the workforce. What can an advisor do
to work this to his or her advantage?
Surveys have shown that millennials
are more interested in socially responsible
investing than previous generations. The
same goes for women, and both groups are
slated to inherit $30 trillion in wealth over
the next three decades, according to PWC.
Yet, many advisors won’t even discuss
SRI, preventing them from offering new
wealth holders a valuable service. Why?
It is largely due to the persistent myth of
SRI underperformance, combined with
the distrust of financial services firms
(common to the older millennials who
came of age during the Great Recession
and have different financial concerns).
However, if advisors can offer much-needed financial planning in a manner
that resonates with the next generation,
they may be able to lay the foundation
for their business for decades to come.
You can uphold your fiduciary duty
while investing clients responsibly
as technology has helped change SRI
options, alongside other investing strategies, by improving risk management,
increasing customization, and lowering
fees and account minimums. This keeps
tracking error reasonable and allows for
fees that reflect the nature of the investments made.
What about fees? Automation has
forced transaction costs down so much
that mutual funds and ETFs just add an
unnecessary layer of fees. Using pre-pack-
aged products rob advisors of the ability to
harvest tax losses with satisfactory granu-
larity — meaning money left on the table.
Fortunately, high demand has prompted new SRI supply so advisors aren’t stuck
with the old guard, and can confidently
choose products that best fit their clients’
needs from both a financial and values
perspective. [Editor’s Note: A recent US
SIF study found there are more than 600
ESG-linked mutual funds today.]
CUSTOMIZATION IS KEY
Technology also has made it much easier
to tailor financial planning and investment strategies to each client’s unique
needs, with wide-ranging implications.
That is, individual-security level customization can reflect a client’s preference
for carbon-efficient companies and manage the concentrated stock position that
originated the client’s wealth. Software
automation also has made dollar-cost
averaging and rebalancing simple — two
important but time-consuming services
offered by good portfolio managers.
Additionally, advisors can now profitably offer services to lower net-worth
clients, filling their pipeline for future
relationships and widening their referral network. The dramatic reduction of
costs and the emergence of fractional
shares make algorithmic portfolio optimization appropriate for a much larger
swath of investment accounts. Advisors
now can access individually tailored,
well-diversified public equity strategies
for accounts as small as $100.
On fees, customization, tax loss harvesting, diversification and rebalancing, as
well as alignment around values and the
impact of investments, technology offers
a qualitatively better solution and opens
up a whole new client population. We also
can continue to expect costs to go down.
With the time saved by technology,
advisors can spend more time building
relationships, meeting prospective clients, and growing their business. As for
existing clients, why wouldn’t an advisor look to create a more emotional connection with clients and show that they
understand them beyond the numbers?
Technology platforms make it simple
for financial advisors to align client assets
with client values, driving engagement
and retention. The future is coming: keen
financial advisors will be the beneficiaries,
serving the emerging generation of with
tech-enabled financial advice, delivering
customization at scale while engaging clients on their most deeply held beliefs.
Claire Veuthey is the Director of ESG + Impact
at OpenInvest. Before joining OpenInvest, she
led the Wells Fargo Social Impact Investing
team’s ESG research.
By Claire Veuthey
The Double Threat Technology Gives
Socially Responsible Investing
Millennials bring with them a need for speed and impact investing.
Technology helps advisors combine the two.