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Enhancing Your Business with SRI and Technology

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Advisors are facing two industry revolutions: First, clients have embraced technology faster than the financial services industry can keep pace with it. They now control the relationship with their advisor and demand 24/7/365 access to advice and their portfolios. This transformation is challenging advisors to deliver value in a highly commoditized industry.

Second, the same clients seeking digital engagement also want more sustainable, responsible and impact (SRI) investment options. No longer a fringe idea, SRI investing is increasingly popular with clients across every demographic – men and women, old and young, novice and expert alike.

Advisors have a tremendous opportunity to meet clients’ interests in digital engagement and portfolios that have a positive effect on the lives of others. However, with so many technology and SRI choices in front of them, many advisors feel like they’re drinking from a fire hose. The SRI space now offers more products than ever before, and these products – along with clients’ needs – are not one-size-fits-all.

(Related: 2 Very Different Approaches to Sustainable Investing)

Advisors should view SRI as an opportunity, and technology, such as a flexible brokerage platform, a model management program and robo-advisor tools, as a facilitator. SRI and technology allow advisors to work with clients on a deeper level and have conversations beyond “when do you want to retire?”

Sustainable, Responsible and Impact Investing Today

In the early days, few embraced SRI investing, with most strategies geared toward excluding certain investments from a portfolio. Over time, non-financial data and analysis – often referred to as environmental, social and governance (ESG) factors – grew to include companies that demonstrated high performance in corporate governance, environmental sustainability and diversity. 

The more broadly defined SRI is no longer just for those interested in the environment or social issues. Large asset managers and leading academics have produced performance data and authored whitepapers showing that values-based investing can add value to a portfolio and create a competitive advantage. We now see large investment managers, such as BlackRock, Merrill Lynch and Morgan Stanley, include ESG criteria in their portfolio management strategies.

Industry data shows us that advisors ignore SRI at their own peril. For example:

  • According to US SIF, SRI investment strategies now account for more than one out of every five dollars under professional management in the United States.
  • Morgan Stanley’s Institute for Sustainable Investing reports that 86% of millennials expressed interest in SRI investing, and that they’re twice as likely to invest in a company or a fund if it is focused on social responsibility.
  • According to Boston College’s Center on Wealth and Philanthropy, women, who are notably more interested in SRI than men, stand to inherit $29 trillion over the next 40 years. This massive, intergenerational wealth transfer will play a key role in further mainstreaming SRI investing.

Taking the Next Steps

The challenge for many advisors is prioritizing their SRI and brokerage technology needs against their options. Advisors have myriad product choices in SRI mutual funds and ETFs. Security filters — both inclusions and exclusions — remain popular with advisors when customizing portfolios. Also, many model strategies are researched, tracked and managed by investment managers with expertise in the SRI space. These model managers also perform shareholder advocacy activities such as proxy voting, shareholder resolutions and public policy work. Advisors may also work with an SRI strategist like Folio Institutional’s sister company, First Affirmative Financial Network, which has a long history of performing due diligence on investment products for socially conscious investors.

Advisors who are exploring adding a robo-advisor platform to their client offerings should also consider how to incorporate SRI investments. They stand to benefit from a comprehensive solution that combines robo-advisor technology, custody, SRI-savvy model managers and a flexible brokerage platform that allows them to create and manage their own models.

It is also important that advisors take time to learn about the SRI space. They can read up or attend a conference, like the SRI Conference, which we sponsor, or a regional Investing for Impact event, where they can meet and learn from other advisors and industry experts.

The integration of a digital engagement model with the demand for SRI in all its forms is good for both advisors and clients. It is enhancing the RIA business model and giving advisors new ways to add value. When an advisor integrates SRI and brokerage technology, they can stand apart from their competitors and better meet the needs of clients who expect both online engagement and values-based investment options.

— Read Morningstar, MMI Launch Sustainable Investing Initiative on ThinkAdvisor.