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When Good Business Allows You to Do Good

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“We were taught,” said Joe Keefe as he looked at me (his contemporary), that “we make money over here and then we spend it over there.” Keefe was speaking about what I call “values investing,” and what is variously called by market participants SRI or ESG or faith-based or impact investing.

Keefe was talking about the generational differences in investor preferences. Younger investors and women, the data show, want to make their money and accomplish social or environmental or corporate governance change at the same time, now, and not wait until they’re old and wealthier and can change the world with their accumulated assets a la Bill Gates or Warren Buffett or, in earlier times, Andrew Carnegie or John D. Rockefeller.

Investors are voting with their cash for impact investing, as our second feature story relates, with some $6 trillion allocated to values investing by institutions and individuals. But Keefe, president and CEO of Pax World Funds, which launched its first SRI mutual fund all the way back in 1971, says that advisors are trailing their clients in the values investing space. Citing data from Morgan Stanley’s Center for Sustainable Investing and Cerulli Associates, Keefe says that while millennials might be most interested in placing their money in sustainable investments, 71% of all investors say they’re interested (that’s the Morgan Stanley data) while 63% of advisors say they have little or no interest in sustainable investing. “What an opportunity for advisors to be early adopters!” Keefe said to me in a December interview.

Yes, showing interest in a topic is different from actually investing in a strategy. Yes, advisors have a lot on their plates when it comes to building risk-aware client portfolios and running their practices and even planning their business growth or exit plans. But as our cover story written by Savita Iyer-Ahrestani reports, Live Oak Bank has become a symbol and a major player in solving advisors’ succession planning and attracting-and-retaining-the-next-generation-of-advisors-and-owners human capital issues.

The Live Oak leaders and lenders are not philanthropists: They saw a market opportunity, hired people who know and appreciate the advisor model — particularly its cash-flow business model — and use good lending procedures and standards to make high-quality loans that allow advisors to acquire other practices.

Live Oak isn’t sitting on its laurels, either. Jason Carroll, managing director and senior loan officer at Live Oak, told me in an email that this year it will begin providing a service whereby younger partners can get financing to guide their path to ownership over time instead of buying out senior advisors all at once.

The values investing ecosphere is also full of companies and individuals who are hard-nosed investors, not starry-eyed dreamers. Keefe said that Pax World looks at “traditional metrics” when evaluating a company’s stock or bonds for inclusion in its funds, in addition to looking at emissions, say, or whether the company has a diverse workforce. While the values are deeply felt, “there’s a business reason” as well in Pax World’s approach.

Lending to younger advisors to buy out older advisors may be a good thing, but without good terms and the ability to pay back that loan, it won’t be a good thing. Advisors may have gotten into the business to help others, but without a strong business to provide that help, you’ll never be successful in helping others.

— Read “How Live Oak Bank Is Solving the Succession Problem” on ThinkAdvisor.