Consider this recent client conversation that a prominent financial advisor, Jim, recently had with one of his largest clients: "Jim, I'm really impressed with how you have incorporated socially responsible investments (SRI) into our portfolios and the excellent returns we're seeing from those investments. But what I'm wondering about now is what are you doing as a business owner to follow suit?"
Jim's response to his client? "Hmm … let me get back to you on that."
With SRI investing growing exponentially, this conversation will become more and more frequent, providing a new opportunity for leading financial advisors to differentiate their firms and capitalize on the SRI "mega-trend" currently happening in the wealth management industry.
This opportunity provides advisors who have a practice management and business plan dedicated to the "greening" of their advisory firm to not only talk the SRI talk, but to also walk the walk and back it up with tangible initiatives to demonstrate their commitment to making the world a better place for current and future generations.
Why is this becoming so important?
The Social Investment Forum (SIF) recently reported that 12.2% [$3.07 trillion] of the $25.2 trillion in total U.S. assets under management is involved in some strategy of socially responsible and sustainable investing. The SIF report further states that these assets are up over 13% in the last two years, despite the economic downturn and in an environment where overall assets increased less than 1%. Additionally, SRI investing has become part of the mainstream, and as a result just about all investment companies now offer SRI products to their clients.
The bottom line is that as more and more investors become aware of and demand SRI strategies, those advisors who are positioned ahead of the "sustainability curve" will benefit the most, leaving firms that aren't, behind.
What's driving SRI demand?
There are a number of factors propelling the demand for SRI investments that are only expected to increase dramatically over the coming years.
Large institutions—particularly public funds—are now adopting environmental and social governance (ESG) criteria due to legislative mandates, causing money managers to increasingly incorporate ESG factors into their investment analysis, decision-making and portfolio construction.
New products and fund styles are driving growth in ESG investment vehicles as well, especially among ETFs and alternative investment funds such as social venture capital, double- and triple-bottom-line private equity, along with responsible property funds.
Additionally, environmentally themed investment products and services are rapidly emerging to meet investors' growing desire to manage environmental risks and capitalize on opportunities in clean and green technology, alternative and renewable energy, green building and responsible property development, along with other environmentally driven businesses.
Other factors include the visibility of high-profile investors and leaders involved in SRI investing, such as Al Gore and David Blood's Generation Investment Management fund with more than $5 billion in assets.
What does this all mean for financial advisors?
The key implications for financial advisors is that as the awareness and investor demand for SRI investing increases, forward-looking advisors can differentiate their firms by not only developing expertise in SRI, bus also in applying sustainability practices (environmentally and socially responsible) to their own businesses to demonstrate their understanding and commitment to their clients and prospects.
Done right, this SRI "walk the walk" differentiation will provide a powerful message, positioning your firm for growth from new SRI asset flows, while helping you to attract and retain top employees, as well as set a strong example in your community on how to preserve and conserve our scarce resources.
There is also a real and tangible return on investment (ROI) from sustainability practices, as they have a direct impact on the bottom line through reduced costs and efficiencies.
