“If you build it, they will come.”
– Field of Dreams
There are many areas for specialization when it comes to wealth management, including the 401(k) marketplace, nonprofit institutions, or other professional or cultural niches.
Many financial advisers look at certain aspects of their personal life to help lead them in the right direction. They might also consider looking at areas within the financial industry with growth potential.
In recent years, one of the fastest-growing areas of the financial universe has been socially conscious investing.
In fact, about $1 of every $9 under professional management in the United States can be classified as a socially conscious investment, according to Forbes. Socially conscious investing started with religious organizations that were looking to exclude investments that didn’t align with their values.
Over the years, the socially conscious world has changed quite a bit. Rather than focusing exclusively on avoiding certain industries, screens have been developed to include specific areas of the market as well.
Environmental protection and human/animal rights are two popular examples.
So does it make sense to develop a niche in socially conscious investing, particularly given that many advisers think that it limits clients’ potential to make money?
Interestingly, there are a number of studies showing that integrating environmental, societal and governance principles into the investment process can lead to outperformance. For example, many socially conscious funds didn’t own shares of oil and gas company BP because of its poor environmental track record, thus avoiding its collapse after the Deepwater Horizon disaster in 2010.
Advisers who are interested in pursuing socially conscious investing as a niche should start by learning about the different variations within the arena and think about how they would like to craft their investment process.
They should also think about a particular area on which they would like to focus, and then decide what role they want to play. Do they want to pick socially conscious vehicles such as mutual fund or exchange-traded funds, or would they prefer to pick individual stocks and bonds?
The answer to that question has a big impact on the design of an adviser’s practice.
Delegating to others will make the job somewhat easier in that the adviser doesn’t have to become a specialist in analyzing the environmental, social and governance components of each company in client portfolios.
On the other hand, acting as a portfolio manager gives advisers the ability to customize each client account around that client’s value system.
This can be particularly important for high-net-worth clients. Crafting an investment policy statement can be useful when building a road map for the client.
Advisers who market themselves as socially conscious experts will find that it requires a lot of work.
First off, they will need to become very familiar with the criteria used in the investment selection process. In addition, it will be critical to understand which investment managers specialize in this niche and what their areas of expertise are.
One of the biggest hurdles that advisers will likely face will be building credibility. Socially conscious investors are deeply passionate about their beliefs.
They want to make sure that their advisers understand and support their outlook.
This isn’t something that advisers can fake or half-commit to.
Advisers, like their clients, either believe in the concept of socially conscious investing, and the impact it can have on the world, or they don’t. This is something that advisers need to decide before they begin developing socially conscious investing as their niche.
As the saying goes: People don’t care how much you know until they know how much you care.