New research suggests a disconnect with clients, as well as variations in attitudes, strategies, and action
There’s no ignoring the increased interest in values-based financial planning, particularly as clients embrace approaches ranging from charitable giving and philanthropy to ESG investment. But when it comes to one particular approach, advisors may want to consider paying more attention.
A new report from Fidelity Charitable, which was based on a survey that included 175 financial advisors, has found an even division in attitudes toward impact investing, with 51% seeing it as a passing trend and 49% saying it’s a long-term change.
Aside from the longevity of the movement, advisors also differed in their levels of involvement. Around six tenths (58%) said they are personally invested in impact investing, with those who were at least 40 years old tending to be less interested (52%) than their younger counterparts (66%).
When it comes to their grasp of impact investing, 53% of all the participating financial advisors said they understand it well. Separating the respondents by their AUM revealed further disparity: the proportion of advisors who said they understand was markedly higher among those with US$100 million or more in AUM (62%) compared to those with lower AUM levels (38%).
“As impact investment opportunities become increasingly accessible to investors of all asset levels, demand for impact guidance will expand among clients at a range of wealth levels,” the report said.
The survey also uncovered a variety of different ways that investors engage in impact-focused investment. The most popular approach, cited by 60% of advisors, was through mutual funds or ETFs that include companies based on ESG. Investing in private funds that focus on companies that offer social or environmental benefits, was similarly popular (59%).
Other approaches cited include investing in small businesses or start-ups that focus on social or environmental benefits (53%); investing in public companies based on social, environmental, or governance criteria (50%), and providing loans to charitable organizations (38%).
Advisors have also discussed impact-investment opportunities with clients to varying degrees. Across all participants, the average percentage of clients with whom they have had such discussions was 41%. That percentage was slightly higher for advisors with greater AUM (44% among those managing US$100 million or more) compared to those with less (36% among advisors with US$25 million to US$99.9 million AUM).
That lack of discussion could be holding back clients’ impact-investing activity. On average, advisors reported that just over two thirds of their clients (34%) have made an impact investment; again, percentages were higher among those with at least US$100 million in AUM (38%) than among those with lower AUM (27%).
The report recommended that advisors introduce the concept of impact investing based on their clients’ interests or planning objectives. Those include:
- Charitable giving in general (cited by 56% of advisors as an area of client interest);
- Charitable planning, such as establishing a charitable giving vehicle (51%);
- Social, environmental, or corporate responsibility (51%);
- Industry and market trends (40%); and
- Multigenerational planning, such as getting children involved in financial plans (40%)