How financial advisers can give investors a socially conscious portfolio that works


Two powerful and seemingly disparate forces are shaping wealth management today: technology and sustainable investing.

The accelerated pace of technological change is both the most creative and most destructive force in financial services, leaving many advisers concerned about the future of their practices. Digital entrants to the investment landscape have simplified the customer experience, lowered fees, and created more investment transparency for clients. The technology’s scalability allows these players to reach new markets that previously did not have access to financial advice. You can expect this to go further “up market.”

At the same time, advisers have had to adjust to numerous regulatory changes, including amendments to fiduciary rules. Clients have embraced investing technology faster than the industry — and they expect 24/7/365 access to an adviser. This is especially true among millennial clients, who are more tech-savvy and price-sensitive than older generations — and who, while they may not have it now, stand to earn or inherit an enormous amount of wealth.

Another seismic shift in investing has been taking place over the past 25 years, as interest in Socially Responsible Investing and related Environmental, Social and Governance criteria has increased steadily. Investors across demographics, but especially millennials and women, now want their wallets and consciousness to be aligned. The conversation has evolved from a simple “When do you want to retire?” to “What kind of legacy do you want to leave?” and “What types of companies do you want to invest in?”

In short, advisers who avoid SRI are doing so to the detriment of their practices. They’re missing out on a potential additional revenue stream. SRI can help advisers retain clients and attract new ones – particularly the millennial generation and women, who are increasingly head investors in households. It’s a way to remain competitive and relevant, and reinforce their brand. And, it also makes sense from a financial perspective: indications are that SRI investments do just as well, if not better, than others – especially in the long run.

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This has all led to an almost existential conundrum: How do financial advisers operate in a world which reduces reliance on humans, requires sizeable investment in new technology, puts constant pressure on fees, and demands a greater alignment between investments and values, all in a significantly more restrictive regulatory environment?

The answer to this conundrum lies in technology. But which technology and when? What advisers chose depends on two factors: how much customized portfolio management they and their clients prefer and how much in-person versus online investing they want.

A viable option is partnering with a broker-dealer or technology provider that provides custom-built solutions like customizable brokerage, custody, and/or investment management and which can accommodate a variety of investment vehicles, including SRI options.

This choice gives advisers needed control and flexibility without an investment in IT infrastructure. Time to market is fast, and it offers better return on investment than building a system from scratch. It can also benefit advisers by streamlining the account opening process and other aspects, so that advisers can concentrate on gathering assets and building client relationships. Finally, advisers gain the ability to private-label their digital offering — reinforcing their brand.

Once this type of digital engagement technology is implemented, it gives advisers the option to construct and manage their own investment models using any combination of SRI ETFs and mutual funds, plus individual securities.

Those advisers who prefer a less hands-on method will benefit from hiring an investment manager that specializes in SRI, and working with a brokerage that offers access to third-party models/investment managers. advisers can license SRI models that are researched, tracked, and managed by investment managers with expertise in this space. These model managers also often perform shareholder advocacy activities such as proxy voting, shareholder resolutions, and public policy work.

Investment managers typically also have mapping algorithms that help advisers ensure they match each client with the right model. This way, they do not have to research investment product providers, diving into the securities that make up a product and understanding their impact on fees. SRI investment options — and the clients that want them — are sophisticated, and the technology can help an adviser sort through this complexity. And, to complement SRI practices, it can help advisory offices go green with essentially paperless processes.

The integration of a digital engagement model with the demand for SRI in all its forms is good for both advisers and clients. It enhances advisers’ business models and gives them new ways to add value. When an advisory firm integrates SRI and brokerage technology, it can stand apart from competitors and better meet the needs of clients who expect online engagement, customized models, and values-based investment options.

Greg Vigrass is president of Folio Institutional. He is a noted expert on digital advisery services, SRI industry perspectives, brokerage technology, and risk mitigation.



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