As the wealth management landscape undergoes significant change, many advisors are concerned that the concept of money management is rapidly becoming commoditized. The rise of digital portals and FinApps, combined with stricter regulation, is challenging many advisors to rethink their value propositions. As the new model evolves, it’s unclear how many clients will be willing to pay for simple, low-cost, passive portfolio solutions.
That uncertainty underscores the need for advisors who put money management at the center of their value propositions to find creative solutions to satisfy their clients, and at the same time, differentiate their practices.
It’s always a challenge to adapt a value proposition because it requires a different way of thinking. I find it ironic that one of the industry’s hottest topics right now may actually provide a solution to some advisors in this regard.
It’s impossible to read any industry publication today without seeing a discussion of impact investing, a portfolio segment that aims to deliver a measurable environmental, social and governance good, coupled with a potential financial return. Women and millennials find it especially appealing. In fact, 84% of women and 76% of millennials, according to a recent Morgan Stanley survey, state that values-based investing is a central goal for them.
This is an interesting trend because it shows demand for this type of investing from two consumer segments many advisors tell me they struggle to gain traction with: women and younger investors. We set out to answer the question: “If there’s a growing need for impact investing solutions, are advisors actually using it?” It seems like the answer should be “Yes!”
But as we looked into hundreds of thousands of accounts on our platform, we noted only 11% of advisors on our platform are integrating impact strategies into their clients’ portfolios, a figure we believe falls far short of the growing demand for investing with an eye toward a greater societal good. Why is this so?
One reason centers on education—or more precisely, the lack of it. While many investors demonstrate high interest in impact strategies, they are not aware of how to incorporate values-based investing into their portfolios. Advisors need to take the lead in explaining impact investing’s benefits to clients, the various ways to implement it, and why it makes sense for their portfolios.
A second concern is the misconception that “doing good” means “not doing well”—that impact portfolios sacrifice performance.