Where the Heart Is

Advisors Wake Up

Did you know that women 55 and older control over $22 trillion dollars of investable assets? Many advisors would like to have a piece of that pie while helping guide the hand of those who are not feeling like savvy investors.

The surest way to capture the interest and attention of women with the power of the dollar in their hand is to give them what they want. And what they want is to fund their values. It’s clear they are less concerned with making money (sometimes to a fault), than they are with feeling good about contributing positively to the world and their personal values. They want this to be addressed.

Over the years many funds have claimed to be social impact funds, or green funds, or socially responsible. I recall looking for them back in 2002 while working at Smith Barney and being disappointed to discover as I delved into the holdings and the management of the holdings to find McDonalds, Nestle and many others that while heavily capitalizing on poverty by feeding the poor junk food, made reparation-like contributions to the communities they were benefiting from by kicking some money back into social welfare programs. The returns didn’t speak well for these funds at the time either, but investors Felt Good with the title of the fund being socially responsible.

Things have changed somewhat, with new technology, new levels of transparency and new investment classes. I believe women can find valid, responsible and impactful ways to invest in their communities and in the world either with the help of their advisor or through their network. As always, it takes diligence.

Investing with impact means getting results that further the cause you are interested in supporting. I wrote an article a few months ago on Big Data and many of the top universities have found ways to follow the results of different types of impact investing. They have found that different processes are needed to get the same results in different communities. It’s a language of investing that comes to mind- which means recognizing the language of motivation for the cause you are interesting in supporting and how that is interpreted in that community. For example, a family in Africa will be more influenced to change when paid in grain or cows  that if paid in dollars.

ThinkAdvisor just released an article mentioning Impact Investing Notes, a debt offering for cause. The returns are low but the objective is simply to ‘release capital’ to address global poverty. Certainly it would seem these funds would do more in the world at a small return than sitting in the accounts of investors who simply haven’t found a path to support their values in the investment arena.

Impact Investments are More than in Vogue

Even Wall Street has seen the writing on the wall and the large firms are aggressively finding ways to bring impact investing to the main stream. While this has been a conversation for a long time, much of the backlog to supply has been due to regulation, ratings and assets as determined by regulators. Both regulators and Morningstar are acknowledging the importance of serving this constituency. This is evidenced by the September IRS announcement that foundations’ mission-related investments should not automatically be subject to a tax. Then in October the Labor Department said it is replacing its guidance on socially responsible investing in retirement plans with new guidance that “all other factors being equal, it's perfectly acceptable for ERISA plan fiduciaries to consider the social impact of their investments,” as long as they abide by the standards of fiduciary obligations. Continued diligence must be placed on potential conflicts of interest as the pathway gets wider for alternative investments entering retirement accounts. By retirement accounts I am including pensions, foundations, donor adviser funds, family offices and estates. Morningstar intends to offer ratings on socially responsible investing (SRI), environmental, social and corporate governance (ESG) investing. I suspect this will open the gateway significantly. The laws are changing to capture the money because women are choosing not to invest at all rather than invest in a way that doesn’t follow their values.

Recent research shows performance of funds using sustainable strategies to be on par with other funds. Please bear in mind we have been in a market upswing for the past seven-year period which is when the study was done. These funds are twice as likely to be of interest to millennials as well, the study revealed.

We Want to Invest With Our Values

Still, financial advisors are disconnected from this trend. Investors and advisors alike are confused by the market, the offerings and which investments are really the best. Part of it is language as defined by regulation. Regulation often makes investments difficult to understand and worse to communicate. In some ways, the confusion is solving itself as the demand becomes more clear and specific. Some of this is solved by the various levels of transparency and other financial disrupters like crowd funding for example. Wright-Violich of Tideline says impact investing asks “how do you drive a positive impact” on social, environmental and other values with your investments. While her colleague, Tideline Director Monique Aiken, says “socially responsible investing assuages your guilt — you didn't do anything bad with your money — while impact investing is about intentionality.”

The PAX World Fund launched 45 years ago, in 1971. It took a while to gain traction both with investors and returns. Today it is well established as a leading impact investment fund.

At the end of the day what matters most is serving your clients. Not just in returns but in their values. How can an advisor promise to deliver dreams when values are not met?

Women hold the keys to the kingdom when it comes to investable assets, with millennials a few decades behind. It is time to give them what they want and help them invest in what matters most.

Zoe Sexton is a Director at a women-owned investment counsel in San Francisco and also provides advisory services to individuals and institutions.