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Socially Responsible Investing: A Way to Attract Younger Clients

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Millennials and Gen Xers are more comfortable with robo-advisors, and women are more risk averse, according to surveys of investors and financial advisors. Now comes another difference between these investors and others: They are more inclined toward socially responsible investing.

According to a new report from Spectrem Research, more than one-quarter of investors under the age of 45, which includes millennials and Gen Xers, allocate at least 25% of their investable assets in socially responsible companies. Twenty-one percent of female investors do the same. The results were based on a survey of 3,070 investors with assets ranging from $100,000 to $25 million.

Advisors interested in expanding their client base may want to consider these survey results. “Familiarity with socially responsible companies may allow you to develop a relationship with the children of your existing clients,” the report says.

Not only are more investors expressing more interest in socially responsible investing but the total SRI assets are growing quickly.  SRI assets have expanded by 76% over the previous two years to a $6.57 trillion at the start of 2014, according to the Forum for Sustainable and Responsible Investment, also known as is the US SIF.

Those assets include companies that promote policies such as water conservation and solar energy — which also come under the heading of “impact investing” — and assets that exclude companies that hamper human rights or harm health, such as cigarette producers.

Although SRI is growing, nearly half of affluent investors have no such investments in their portfolio and more than one-third have 1% to 24% of their portfolio in SRI, according to the Spectrem survey. Among younger investors, the allocation ranged from 25% to 74%, and they are more willing to pay more for socially responsible investments than other investment.

“Advisors who are aware of socially responsible investments may have the ability to work with younger investors more easily,” the survey said.

Spectrem suggests that advisors who want to reach clients interested in SRI consider the following:

  • Ask investors about their interest levels in socially responsible investments, and make sure that they understand that socially responsible investing is not the same as a charitable donation.
  • Be familiar with different types of socially responsible investments, including investments in water or human rights, and the various initiatives companies may have in those areas.
  • Discuss the difference between microfinance, impact investing and social responsibility with your customers. Microfinance provides loans to poor entrepreneurs and small business-owners who have no collateral and wouldn’t otherwise get funding. Referring to microfinance, the survey states that “To the extent they believe their funds are assisting someone willing to work hard, they may be more willing to risk their own assets.” Impact investing relates to companies proactively using policies that are considered helpful to people and the planet, including ESG policies — environmental, social and (corporate) governance. Socially responsible investing (SRI) refers not only to impact investing but also to avoiding companies whose policies are considered harmful to people and the planet.

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