Want More Millennial and Female Clients? Tout ESG Funds

By Brian O'Connell InsuranceNewsNet

Call it a financial industry “two-fer” – not only do more millennial and female advisors favor environmental, social and governance (ESG) funds – the same goes for investors in those demographics, too.

In fact, a new study shows that millennials and female advisors are making significant headway with new clients – by marketing themselves as ESG experts. That data comes from Eaton Vance’s second quarter Advisor Top-of-Mind Index.

“Female advisors are more likely to express interest in ‘responsible’ investing strategies than their male counterparts,” the report stated. “Forty-six percent say responsible investing is an important part of their practice, compared with 38 percent of male advisors, while 44 percent expect to increase their responsible investing recommendations in 2017, compared with 35 percent of male advisors.”

Overall, clients are more likely to show interest in responsible investing strategies with female advisors than male advisors, Eaton Vance reported.

Millennials On Board, Too

On the millennial side, younger advisors are more likely to express interest in responsible investing strategies than all other advisors, the report noted.

“Fifty-five percent say responsible investing is an important part of their practice, compared with 37 percent of all other advisors, while 41 percent say clients are increasingly discussing responsible investing, compared with 27 percent of all other advisors,” the report found.

In addition, 51 percent of millennial advisors expect to increase their responsible investing recommendations in 2017, compared with 34 percent of all other advisors.

Clearly, attitudes are strong on ESG investing, among both advisors and clients in both demographics.

“I was that client and now am that advisor,” said Kristin Hull, a founder of Nia Global Solutions in Oakland, Calif. “Investors are starting to connect the dots, with women and millennials leading the charge.”

We live in a society where it’s “perfectly acceptable” not to know what you own, what your bank funds, or what might reside in your 401k plan, Hull said.

“Yet with the effects of both climate change and social inequities on the rise, individual investors are seeking to leverage what they have for the world they want to see,” she noted.

Those advisors who can help in aligning investment portfolios with individual values and core purpose are those that will attract and retain the growing number of women and millennials seeking this values alignment, Hull explained.

Smart investors of all stripes understand that adding the extra due diligence that considering ESG factors require is simply smart investing for solid returns.

“Choosing solutions-focused companies with diverse leadership sets up a portfolio for growth,” Hull said. “Rather than asset classes or risk-return ratios, women, for example, are much more interested in knowing what their investment is accomplishing in the world, what their money is achieving, apart from a single bottom line.”

New Investment Strategies

As Eaton Vance noted in its study, more advisors are taking that notion to heart, and are starting to craft ESG-related investment strategies.

“I believe asset managers are of the ‘if you build it, they will come’ mentality,” said
Anna Dunn Tabke, director of research at Alpha Capital Management in Atlanta.

Tabke, who has seen a “big uptick” in ESG portfolio availability at advisory firms, said
social consciousness is a trend that is increasingly “trickling into the investment space,” especially among younger investors.

“Millennials, so goes the theory, tend to be more socially conscious and willing to invest to make an impact, not just to make money,” she said. “As millennials stand to inherit significant assets in the coming years, the investment industry is paying attention.”

Simultaneously, ESG investment strategies are evolving as well.

“Twenty years ago, this type of investing was primarily exclusionary,” Tabke noted. “That meant no alcohol, tobacco, or nuclear power-related stocks. Now there are many available ways to invest, from the positive features of firms in the areas of environment, social, and governance to companies focused on delivering products that change the world.”

For example, Morningstar has a sustainability measure using MSCI data on companies.

“Information is more widely available, and firms are making use of it to provide investment options,” Tabke said.

Advisors who tout ESG portfolios to clients (especially younger ones) as vehicles that stand out socially and financially, are the ones making the most headway, said Maggie Johndrow, a financial advisor with Farmington River Financial Group in Farmington, Conn.

“A trait often associated with millennials, especially, is that they would like to make a social impact on society,” Johndrow said. “Therefore, some are cautious when it comes to investing in companies that perhaps do not agree with their personal set of values.”

That’s where ESG funds can close deals.

“They’re a great way to ensure millennials are taking advantage of compound interest and outpacing inflation, while still allowing them to feel good about their investment,” she noted.

Women Supporting Women

Female clients are asking more questions of advisors these days, and money management firms are responding in kind.

“For instance, we’ve found that women particularly like to support other women,” Johndrow said. “Consequently, we provide some mutual funds that seek to invest in a way that advances women's leadership. They invest into companies with majority representation of women on the board of directions and in executive management, with a female CEO and/or CFO, and with signatories to women empower principals.”

Such funds still provide the diversification of traditional non-ESG mutual funds, and historically overall have performed well, she added.

So-called “responsible” investments have been around, in some form, for decades. But with increased demand from younger clients and from female clients, they’re changing with the times.

In the process, they’re giving advisors new client marketing opportunities, at a time when industry competition to sign new customers is highly competitive, and where difference makers are a big priority.

Brian O'Connell is a former Wall Street bond trader, and author of the best-selling books, The 401k Millionaire and CNBC's Guide to Creating Wealth. He's a regular contributor to major media business platforms, including CBS News, The Street.com, and Bloomberg. Brian may be contacted at brian.oconnell@innfeedback.com.