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Nearly Half of Advisors Don’t Offer Social Investing: TIAA

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With interest in social impact growing and the availability of more responsible investment options than ever before, there is still a significant portion of investors and advisors that are unsure about what it means to implement these strategies in an investment portfolio. And those advisors are missing out on a chance to deepen their client relationships.

According to TIAA Global Asset Management survey results released Tuesday, 46% of advisors say they have never offered responsible investing – also commonly referred to as “socially responsible” or “environmental, social and governance” investing – products to their clients.

The survey also found that 61% of investors say their advisor did not bring up responsible investing over the past 12 months.

“Advisors do know they have to learn more, speak more and start offering more in this space,” Amy O’Brien, managing director and head of responsible investment at TIAA, said during a media briefing in New York.

The survey found that advisors plan to dive deeper into responsible investing, with 58% reporting they’re more likely speak to their clients more about responsible investing and 57% are likely to start offering more responsible investing choices.

Which is a good thing because nearly half (48%) of the investors in the survey are interested in participating in responsible investing over the next 12 months.

And millennials outpace their elders. The survey found that 69% of millennials investors are interested in participating in responsible investments over the next 12 months compared with 43% of other generations.

“The good news is there’s a lot of interest, a lot of future demand for investors but certainly something is preventing them from taking that step,” O’Brien said.

Currently only a third or fewer of affluent investors overall say they currently own responsible investments, the survey found. Two in five affluent investors (40%) report they are unsure if they currently own responsible investments within their portfolios.

The survey suggests that misperceptions about the role and benefits of responsible investing – among both advisors and investors – may be what’s limiting adoption rates.

Notably, the survey finds that 51% of financial advisors believe responsible investing does not provide the same rate of return as other investment strategies, while 57% of investors believe responsible investing offers a lower rate of return. But studies have shown that isn’t always the case.

“According to our recent socially responsible investing performance analysis, indexes that follow SRI guidelines delivered long-term performance returns comparable to the broad market benchmarks,” O’Brien said. “Incorporating environmental, social and governance criteria in individual security selection can in fact deliver market competitive returns.”

Another common belief among  investors is that socially responsible investing is only for the very wealthy.

According to the survey, both investors and advisors are also doubtful of the availability of best-in-class products. More than one in four affluent investors and advisors in the survey responded that responsible investment options are very limited or that the category lacks quality choices.

The results of the survey also show that there’s a need to develop a better understanding of responsible investing overall.

The survey finds that four in 10 (42%) of affluent investors “associate responsible investments as charity.” Also, according to the survey, 65% of investors think responsible investing is mostly about excluding companies that fail to meet certain criteria, and 72% of advisors agree.

According to O’Brien, too many investors still question how to define responsible investments, whether they can produce comparable returns to broad benchmarks, and how advisors and investors can distinguish between what is and is not a responsible investment.

According to Jill Popovich, managing director of individual advisory services at TIAA, many people want their investments to reflect their values. In fact, the survey found that over three-quarters (77%) of affluent U.S. investors say that they want their assets to have a positive impact on society.

 “It is critical for advisors out there to become much more proficient in understanding [investors’] needs, goals and objectives and these preferences to maintain long-term relationships,” Popovich said during the media briefing. “Whether it be with a millennial out of the gate as they’re starting to become investors or frankly through intergenerational wealth conversations. We’re having more and more conversations with families about the transfer that happens upon parents’ deaths.”

Popovich said it would be a “fatal error” if advisors did not ask clients about their responsible investing preferences.

“Our industry is very highly regulated, and we have a core responsibility to know our individual clients,” she said. “But I think it has to go much deeper than just a suitability requirement for individual investors. We need to truly understand who they are at their core, what are their goals and objectives, and how we can meet those.” The survey does find that talking to clients about their personal values as well as their financial goals helps build deeper and lasting relationships. According to the TIAA Global Asset Management survey, almost three-quarters of investors (74%) would be more likely to work with an advisor who could give them competitive investment returns from investments that also made a positive impact on society and 65% of investors would be more likely to stay with an advisor who could discuss responsible investing with them.

And retirement plan sponsors should take note: 71% of respondents said having social investing options in their retirement plans would make them feel good about their employer.

Half of investors said they were interested in stock funds emphasizing low carbon emissions. Slightly more than half cited U.S. stock and bond funds, while slightly less than half expressed interest in international funds.

The study included responses from 275 currently employed financial advisors in the U.S. (1/3 wirehouse, 1/3 RIAs, 1/3 broker-dealer affiliated) and 2,206 affluent investors who were U.S. residents over age 21 with $100,000 in investable assets (excluding workplace defined contribution accounts or real estate). These investors also consider themselves the decision maker for financial decisions and currently work with a financial advisor.

— Check out Can Calpers Live With Responsible Returns? on ThinKAdvisor.