There’s been a generational shift in how investors think about their investments, and many advisors haven’t kept up. Younger investors, millennials and Generation Z, are more likely to want to build wealth in a sustainable way. A 2017 Morgan Stanley study found that 86% of millennials are interested in sustainable investing, and they’re twice as likely as older investors to seek out companies with good social or environmental policies.
Some advisors haven’t thought about how they can bridge this generation gap, and as a result, they can end up discouraging investors and even losing potential clients. But you don’t have to be an environmental, social and governance enthusiast to help people who are interested in sustainable investing.
Here are five ways to help the next generation of investors with sustainable investing:
1. Ask questions Investment advisors need to have a clear understanding of their clients’ goals and risk needs to help them invest, so start by asking questions like: How do you personally define sustainability? Are there certain companies you’re looking to avoid entirely? Are there particular issues you’re trying to support? What’s the goal of sustainable investing for you?
2. Focus on what you know best Sustainable investing follows many of the same rules as other kinds of investing. Sustainable investors still need to be diversified and think about potential risks and returns. Advisors can fill an important role here by helping investors diversify their portfolios or help them think through potential risks. Remember that many millennials haven’t been invested during a serious market crash, so advisors can really add value by helping them understand and mitigate risk.
People who are new to sustainable investing are often attracted to funds that concentrate in one industry, like solar energy, because they believe these funds are a more direct way to address issues around climate change and energy independence. However, newer investors may not realize just how volatile concentrated funds can be. You could help them determine if speculative stock funds are right for them, and if so, how these funds might fit into their portfolio.
3. Let sustainable mutual funds do the heavy lifting Most people just don’t have time or expertise to evaluate a company’s ESG practices. Fortunately, there are many mutual funds that do this important analysis for you.
Even if you aren’t an expert in sustainable investing, you probably know something about choosing mutual funds. There are a growing number of sustainable funds available these days and it can be hard for newer investors to know where to start. You could help them choose funds that are appropriate for their goals and build a diversified portfolio.
4. Get up to speed with sustainable investing A 2018 Nationwide Advisory Survey found that millennials choose advisors based on experience first and then socially responsible investing, so it makes sense for advisors to brush up on ESG investing. Sustainable investing doesn’t only exclude certain companies or industries. Today’s strategies are far more comprehensive: they seek to include companies that have strong ESG practices, and they even work with companies to help them improve.
These approaches have been shown to do just as well as other investing strategies while also making a positive impact.
5. Refer them to advisors who manage sustainable portfolios Many advisors are already on board. A 2019 Morgan Stanley and Bloomberg study found that “asset managers overwhelmingly view sustainable investing as a business-building opportunity.” So if you aren’t in a position to help someone who wants to invest in a more sustainable way, then be willing to direct them to someone who can be of service.
Janet Brown is president and CEO at FundX.