Why Advisors Should Guide Clients on Philanthropy, Impact Investing

‘Aligning financial goals and personal values get to the heart of wealth management,’ SSGA says

A new report from State Street Global Advisors suggests that financial advisors who incorporate clients’ personal values into goals-based wealth management help them experience a greater sense of purpose through their financial capital.

Guiding clients on philanthropic giving and impact investing creates a virtuous circle: As client satisfaction rates grow, strengthening the advisor-client bond, retention rates rise along with the opportunity for increasing assets under management.

“We highlight the humanity of wealth management when we help clients fulfill their own set of values through philanthropic giving and impact investing,” Brie Williams, head of practice management at SSGA, says in the report.

Investor demand for socially responsible investment strategies has grown by 33% since 2014, according to the Forum for Sustainable and Responsible Investment (US SIF) Foundation’s 2016 report, and now represents about a fifth of total assets under professional management in the U.S.

SSGA notes that performance does not give way to principles. Mutual funds and separately managed accounts classified as sustainable investments often outperform on both an absolute and a risk-adjusted basis.

“People don’t have to think of investing and philanthropy separately,” Melanie Schnoll Begun, Morgan Stanley’s head of philanthropy management, said in the report. “There are more opportunities to combine the two through impact investing and purchasing decisions, which allow people to buy a product and support a cause at the same time.”

Clients want to learn more about impact investing opportunities, and prefer to receive help with where and how to invest from their financial advisor, according to SSGA.

Clients with advisors who point the way on philanthropic planning are 40% likelier to be very satisfied with their advisors, SSGA found.

Moreover, 44% of investors said they wanted more guidance from their advisor to ensure their charitable giving has an impact.

Millennials, the next generation of investors, generally see socially responsible investing as a natural expression of their values and beliefs, according to SSGA.

Research by Calvert Investments found that millennials were more likely to direct all of their plan contributions to responsible investing mutual funds if these were on offer by their employer.

Many factors motivate generosity, and it is important for advisors to understand these motivations, SSGA said.

“To know how to talk to clients about philanthropy, advisors have to experience it themselves,” Blair Cunningham, a partner at SignatureFD, said in the report. “We need to be involved in the learning process, to start a natural conversation on this topic with clients.”

The report asserts that advisors who overlook or misinterpret their clients’ views on such matters as sustainability, which is important to investors who want to avoid companies that do harm, are thwarting their own approach to goals-based wealth management.

Today, a wide variety of vehicles exist to bring together giving and investing. Donor-advised funds, with their immediate tax benefit, convenience and flexibility, are the fastest-growing one, with assets now amounting to more than $70 billion, according to the report.

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