Why Advisors Without an ESG Strategy May Fall Behind

ESG investing isn’t a new idea. Coined in 2005, ESG expands on traditional socially responsible strategies to include options that are socially responsible, environmentally friendly, and that are governed in a way that supports a greater mission.

The ESG market has grown significantly over the years, with more than 1,700 signatories and 68.4 trillion in assets under management1according to MSCI.

ESG investment options are widely available to advisors and their clients today, but why? Why are they so important to the long-term health of your advisory firm?

One of the hot button issues in the industry today is how advisors can better resonate with millennials. The next generation of wealth. The elusive, hard-to-understand, yet pivotal generation that holds the future of financial advice in their hands.

You hear about the need to change your billing style, the way you communicate (Do you conduct meetings via Snapchat yet?), and the service experience you deliver. But what about the core product you deliver – connection to investment products, and advice on how to use them?

According to the 2018 US Trust Insights on Wealth and Worth Report, millennials lead the generational-pack in interest in ESG investing – by a long shot. As a whole, 40% of high-net-worth (HNW) investors are found to either own, or have an interest in owning ESG/Impact investments. However, that number nearly doubles, to 77%, for millennials. That’s almost 20% higher than the next closest generation (Gen X)2.

Similarly, 53% of HNW investors agree that a company’s environmental, social, political and governance track record is important to the decision on whether or not to invest in it. When you break that down among generations, millennials are well ahead, with 87% in agreement – 22% higher than Gen Xers2.

We can see a fundamental difference in the attitudes and values expressed by younger investors.

That caries into their ideal use of wealth. Younger generations demonstrate a higher desire to use their wealth to help others, at 70%, than those that precede them (just 39%). Idealism might be the most apt descriptor for the emerging class of wealth. More than two-thirds of millennials seek to build wealth, in part, to help them change the world – leading all generations and dwarfing the oldest demographics2.

Millennials are highly interested in using their money for good and seem to be more concerned about what they are investing in, morally and ethically, than what financial advisors are used to working with.

“Including companies with ESG attributes as opposed to simply excluding sin stocks, such as alcohol and tobacco, resonates well with millennials,” says Kostya Etus, Senior Portfolio Manager at CLS Investments, a provider of ESG strategies through the FTJ FundChoice platform. “Although older generations were also focused on social issues, millennials have zeroed in on global climate change, gender equality, and companies that are helping make the world a better place.”

But the financial advice industry is faced with a supply and demand issue. While the next generation of wealth shows substantial demand for ESG/Impact investment options, most advisors aren’t supplying the conversation that’s needed to guide their clients through selecting and integrating those investment options into their overall portfolio – and what that means for their long-term financial well-being. Just 11% of investors report having conversations with their financial advisor about investing for social or environmental impact2.

The opportunity for financial advisors to position themselves as someone who better understands the values of younger investors, and who can more readily align with those values is significant.

“As you look to differentiate and grow your practice by offering sustainable, responsible, and impact investment opportunities to your clients, it is imperative that you identify an experienced manager dedicated to helping you integrate ESG principles into your business model,” says Theresa Gusman, Chief Investment Officer at First Affirmative, a strategist available through the FTJ FundChoice platform that specializes in responsible investing. “ESG solutions, underpinned by technology and customized based on clients’ risk, return, and impact objectives makes it easier to serve millennials, women, and the more than 70% of all Americans that Morningstar indicates have expressed at least moderate interested in sustainable investing.”

Isn’t it ironic? Advisors without an ESG strategy might face sustainability issues (with firm growth) in the future. If you would like to learn more about the ESG investment options available through the FTJ FundChoice platform and the strategists that support them, click here.

1MSCI.com/esg-investing, citing the United Nations Principles for Responsible Investing (PRI)

22018 US Trust Insights on Wealth and Worth Report

This material does not constitute any representation as to the suitability or appropriateness of any security, financial product or instrument. There is no guarantee that investment in any program or strategy discussed herein will be profitable or will not incur loss. This information is prepared for general information only. Individual client accounts may vary. It does not have regard to the specific investment objectives, financial situation, and the particular needs of any specific person who may receive this report. Investors should seek financial advice regarding the appropriateness of investing in any security or investment strategy discussed and should understand that statements regarding future prospects may not be realized. Investors should note that security values may fluctuate and that each security’s price or value may rise or fall. Accordingly, investors may receive back less than originally invested. Past performance is not a guide to future performance. Investing in any security involves certain non-diversifiable risks including, but not limited to, market risk, interest-rate risk, inflation risk, and event risk. These risks are in addition to any specific, or diversifiable, risks associated with particular investment styles or strategies.

0242 – FTJFC – 4/30/2019