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October 03, 2014 at 12:33 PM
Millennial investors represent a huge future market for advisors, and this cohort is socially conscious when it comes to investing. However, advisors are not fully equipped to meet the demands of socially responsible investing (SRI).
According to a blog in the Harvard Business Review, millennials who are inheriting or building private wealth will greatly impact global change. In order to mobilize that capital as a force for change, three things must happen, write social entrepreneur Vilas Dhar and Boston Consulting Group consultant Julia Fetherston.
First, private-sector entrepreneurs need to identify opportunities to build companies that can use impact capital to grow to scale. This will provide an increased volume for deal flow.
Second, millennials need to “vote with their wallets,” the authors say. They need to demand that retail banks, wealth managers and advisory firms provide financial products with a variety of risk, return and impact characteristics.
Providing such products is easier said than done, as the authors illustrate. Discussing a 2013 study on millennials by Merrill, the authors write:
“Merrill Lynch described one client’s impact investment as “a tricky undertaking for both client and advisor…the collaboration, in many ways an experiment, is ongoing.” For the same investment, the report asks, “what measures should be used to judge the social impact of these investments? How long should you wait for that impact to take hold, let alone a profit stream?” These are the questions investors are looking to advisory firms to answer, not just ask.”
The authors’ third piece of advice is that public- and private-sector investors will need to partner with the academic world in order to aggregate information on impact investing deal activity, compile best practices in impact measurement, reduce transaction costs, and inspire new participants through social engagement, the authors write.
The market for impact investing will only get bigger. An estimated $41 trillion is expected to be transferred to millennials from older generations by 2052, according to a report by Boston College — the largest intergenerational wealth transfer ever.
