144. How to help your clients invest for more than financial returns: how to consider societal values too

Long gone are the days when investors left their societal values at the door. These days, most investors want to invest with their environmental and social values in mind.

If you are a financial advisor, you may feel intimidated or skeptical about how to serve clients who want you to incorporate their societal values into their financial plans.

This week’s episode provides simple suggestions to guide advisors (or DIY investors!) on how to incorporate values aligned principles into how they serve their clients.

Links from today’s episode:

‘Not just money and math’: Young people are willing to sacrifice returns for ESG | CNBC Aug 2023

https://www.cnbc.com/2023/08/27/not-just-math-and-numbers-young-people-are-willing-to-sacrifice-returns-for-esg.html 

The ESG Generation Gap: Millennials and Boomers Split on Their Investing Goals | Nov 2022

https://www.gsb.stanford.edu/insights/esg-generation-gap-millennials-boomers-split-their-investing-goals 

Beyond Returns: The Rise Of Values-Aligned Investing | Forbes May 2023

https://www.forbes.com/sites/forbesbusinesscouncil/2023/05/26/beyond-returns-the-rise-of-values-aligned-investing/ 

ICYMI another episode you might enjoy:

Episode #120 Where can I find an advisor to help me invest according to my societal values?

Episode#124 What to ask a financial planner if you want them to consider your societal values 

Connect With Genet “GG” Gimja:

Website https://www.progressivepockets.com

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Transcript

Welcome to Progressive Pockets! I go by GG, that’s short for Genet Gimja. This is a show about money, but not in the typical way that we talk about money. This show is about how to bridge the gap between the world we want and our daily money decisions. You can come here every week to explore how we can reconcile being concerned about climate change and then realizing that there are climate destroyers in your 401K. What to do if you believe in sensible gun control but you find out that your bank supports the gun lobby. What to do if you are an ally in your community but you want to take that allyship further in rethinking your giving.

Basically if it is about our money and the world we want, we will talk about it here. Some listeners of this show have let me know that they are looking for financial advisors who can help them take into consideration their societal values and I covered that back on episode 120 where can I find a financial advisor to invest according to my values. I’ll leave a link in the show notes in case you missed that one.

But I am also aware that there are some financial advisors, coaches, educators, planners that listen to this show too. So today’s episode is going to help you think about your clients who want more than just returns.

And to be clear, investing with your societal values in mind is popular and growing in popularity every day. Around 4 out of 5 investors are interested in some sort of sustainable investing, whether they are focused on the environment, or fair labor practices or sustainable agricultural practices. Most investors are interested in this type of investing. Younger investors are even willing to trade some of their returns if they can align their investment portfolios with their societal values. I’m going to include the data in the show notes.

This growing demand from the public to invest in socially responsible or sustainable ways has not gone unnoticed. It has translated into a political battle. You might remember that President Joe Biden used his first veto in March to save a Department of Labor ruling around socially responsible investing that many Republicans wanted destroyed. Lawmakers in Washington have continued to fight over environmental, social and governance reporting mandates for companies.

If you are a financial advisor and you haven’t already started getting questions from your clients about how they can incorporate their values into how they invest, I would be willing to bet those questions are coming.

And if you don’t have a financial advisor, and you’re a DIY investor, these tips can also be helpful to you since you’re essentially working as your own financial advisor.

So here are 10 steps to follow to incorporate someone’s societal values into their financial plan.

1. Identify the client's core values: Begin by having an in-depth conversation with the client to understand their personal beliefs, principles, and societal concerns. You’re going to want to take your time on this step because this step is crucial for aligning their financial decisions with their values. If you can get on the same page about this in the beginning, you’ll be able to demonstrate for them how they are progressing according to what they said is important to them.

There are lots of ways to get clarity on their values as they might relate to their money. Your client might already have a sense of what keeps them up at night, what articles in the newspaper they tend to linger over. That’s probably why they’ve asked you to start investing their money with their values in mind. Because there’s something bugging them about their current portfolio. Spend time on this step to understand their core values for their money.

1. Assess current financial situation: You’re going to want to evaluate the client's existing financial portfolio, goals, and risk tolerance to establish a baseline. All of this is going to inform the money strategy you come up with for them. For example, I am going to link some data about the youngest of investors, gen Z, they have the longest time horizon before retirement, I mentioned that 4 out of 5 investors are interested in socially responsible investing, that’s across all ages. Among gen Z investors that number is over 90%. They are also willing to trade some of their returns if they can invest in companies that are actually aligned with their values. Way more willing to take lower returns than any other investor group. So this is where really understanding your client’s current financial situation is going to help.

If you’re working with a client who is closer to retirement or just more financially conservative in general, that’s going to definitely inform your approach.

1. Define value-based financial goals: Work with the client to set specific financial objectives that align with their values, ensuring these goals are measurable and achievable.

In the past, if you were working with a client in the old fashioned way of just seeking returns, you would just set financial goals that made them as much money as possible according to their retirement goals. The extra nuance you’ll take into consideration with a socially responsible investor is going to be to take into consideration their values goals.

You might set a goal together that in the first year they put 10% of their investments into socially responsible investments and you have a goal to grow that by some percentage every year so that in five or ten years a quarter of their money will be in socially responsible investments.  That’s one example of defining a values-based financial goal.

1. Explore values-aligned investment options: Research and present investment opportunities that match the client's values. Ok this is the fun part, this is where you are looking across the market at all of the financial products or approaches that make sense for your client. You can look into:

Environmental, Social, and Governance (ESG) investing. If you need a 101 lesson on ESG and what it is and what it isn’t, episode 76 has all of that information for you. That was a popular one including among listeners in the financial industry. 

As you’re looking for resources for your investor, you can also look into products for 

Socially Responsible Investing (SRI)

Impact investing

Faith-based investing

Community investing

Cause-based investing,

And Ethical investing.

1. Develop a customized investment strategy: Now that you have researched all of these products and approaches for socially responsible investing, you’ll want to create a tailored plan that balances the client's societal values with their financial goals and risk profile. This may involve adjusting asset allocation or selecting specific companies or funds that align with their values. You’ll want to encourage your client to think about their money as a tool belt with different tools to get at achieving their societal values. Taking this holistic approach to thinking about their money means that your client will think about where they keep their cash and how they donate as all a part of their values aligned money strategy. So the investment portfolio that you create for them is going to be a piece of that puzzle.

1. Implement the strategy: Execute the agreed-upon plan, which may include divesting from certain holdings and investing in new, values-aligned opportunities.

1. Engage in shareholder advocacy: ok this is a big one, where there are opportunities, help clients participate in shareholder advocacy for publicly traded companies, such as voting on proxy statements. This is a very important part of the services that you’re providing your clients who have come to you asking about socially responsible investing. Make sure your clients understand that this is yet another way you’ll help them to have impact with their investments. This is a big one.

1. Monitor and report on impact: Regularly assess the performance of the values-aligned investments, both in terms of financial returns and societal impact. Provide clear reports to the client on how their investments are supporting their values. Some of the modern day products for socially responsible investments do include information about the social returns as well as the financial returns as a standard part of how they report nowadays, so you’ll want to be able to provide that type of information to your client. This is where you can go back to the mutual understanding you both created about their values at the very beginning of your work together. You can refer back to that document or that understanding to say this is what is important to you, this was your goal for the year in terms of your values, not just the returns you were hoping for, and this is the progress that we made according to your values and financial goals for this time period.

1. Educate the client: Continuously inform the client about new opportunities, trends, and challenges in values-based investing. I believe that this kind of leadership will lead your client to recommend other clients to you. There is something about socially responsible investing that people are just excited to talk about. I think they’re proud and happy to share that they’ve found a way to walk the talk and put their money where their mouths are. And that’s where I think your emails or your newsletters to your clients can reverberate beyond your clients to potential additional clients that may be interested in your services.

1. Review and adjust: Like all financial planning, you’re going to need to review the strategy periodically with the client, making adjustments as needed based on changes in their values, financial situation, or market conditions.

That’s it. It’s not terribly different than how you’d think about approaching any other client. To recap, here are the differences:

• In that early stage where you’d generally be trying to understand about your client’s lifestyle and life goals, you’re going to add one more category which is their societal values that they’re hoping to incorporate into their money strategy.
• In the same way that you’re constantly educating yourself on the current products and strategies that are out there, you’re going to also start to research the growing field of socially responsible investing to scope out some tools that are appropriate for your clients.
• When you report out results to your clients, you are also going to want to add a component which speaks to their values and how their goals related to their value are going. For example, you may have set a goal together of what portion of their portfolio would be invested sustainably, you can report back on that. Some sustainable funds report back on their social or environmental impact, you can include that type of information when you report out results to your clients.
• Finally, there’s an education piece that your clients are going to be looking for, so you’ll want to keep them up to date on tools and strategies that you’re deploying with your values aligned clients.

This interest in investing according to societal values isn’t going away anytime soon, so I hope you will find these tips helpful as you start to work with more and more clients who are seeking this type of impact.

If you have more time today, here’s another episode to check out, that’s episode 124 What to ask a financial planner if you want them to consider your societal values.

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“There is always light, if only we're brave enough to see it. If only we are brave enough to be it.” Amanda Gorman

Let’s talk again soon!