By Thomas Kostigen
Finance is obviously a discipline of numbers, facts, and figures. So, does it matter if your financial advisor shares your same values or beliefs?
Financial planning, on its most basic level, is largely a craft of making sense of numbers over a long period of time. Expenses and costs have to be paid for by income and assets. Hence, maximizing income and appreciation is every financial advisor’s duty — or should be.
On the surface, the income/expense formula has little relevancy to soft externalities such as shared values or personal beliefs. Those don’t readily fit into the advisor-client relationship whose existence is based on numeric success. Whether you like your advisor as a person, whether you belong to the same religion, or whether your morals match with his or hers shouldn’t really matter if investment returns are exceeding expectations and if your overall objectives are being met. But guess what, morals matter.
According to a recent Vanguard investor study, nearly half of those surveyed said that having a personal connection with an advisor was the second most important thing to them in a professional financial relationship. Trust came in first.
The study, Assessing the value of advice, found that “emotional outcomes account for 45% of total perceived value. Another 55% of value is associated with functional aspects of the relationship, such as portfolio management, financial planning, and other services.”
As non-financial issues become baked into corporate performance assessments, and as environmental, social, and governance factors become market forces, investors are increasingly looking for advisors who understand the issues they care about. For advisors, this is good news. It should help refine their client base, if not prospecting and marketing efforts.
If you’re an investor, having an advisor who sympathizes with your brand of ethics can help better define a rewarding life plan, as well as better assess the value you are getting for fees and commissions.
There is a clear trend of developing like-minded cohorts afoot. The Financial Times recently launched Moral Money, a newsletter aimed at exploring the fast-growing, international shift towards ethical, sustainable, and responsible investing. Larry Fink, the chief executive of Blackrock, the largest asset manager in the world, said in not so many words recently that his firm will not be making investments in companies that do not share a similar vision of climate change risk. And the Business Roundtable, an association composed of CEOs from some of the biggest companies in the United States, issued a statement last summer that calls for a redefinition of what businesses should stand for.
Businesses should “promote an economy that serves all Americans.” the BRT said. Customers, employees, suppliers and communities should be served as equally as shareholders, it explained. In short, the BRT was saying that a company is much more than a corporate earnings statement, a bunch of numbers.
Investors, it seems, are calling for the same treatment by their financial advisors. If you can’t understand why your advisor would make an investment in a company or a sector that you loathe, then perhaps it’s time to look around for an advisor who “gets you.”
Thomas Kostigen is a contributing writer to MyPerfectFinancialAdvisor , the premier matchmaker between investors and advisors. Thomas is a best-selling author and longtime journalist who writes about environmental, social, and governance issues.