By Thomas Kostigen
It’s no secret that trillions of dollars are being passed from the baby-boom generation to the next generation. Financial services industry analysts and consultants have been touting opportunities for trust, estates, and wealth managers for years. Smart financial advisors have already begun assisting with what is being called the biggest wealth transfer in history. (Estimates of the transfer run as high as $30 trillion being passed between generations.)
What’s been missing from the discussion, at least to some advisors’ eyes, is the important roles environmental, social and governance (ESG) issues can play in the big asset shift.
Tony Davidow, a longtime financial consultant and author of Goals-based Investing: A Visionary Framework for Wealth Management, says there is huge investor demand for more ESG guidance because of the number of investment products on — and coming to — the market, including exchange-traded funds, mutual funds, and more, as well as investor interest in the ESG sector.
This opens the possibilities to craft new strategies for clients, especially those inheriting money.
“The wealth management industry is at a key inflection point, with dramatic changes in the investing landscape, the types of investments, and manner in which advice will be delivered. Wealth advisors need to respond appropriately to these changes or risk being replaced by robots and algorithms. As challenging as the future seems, it will also present ample opportunities for those advisors that embrace the changes and evolve the way they do business,” says Davidow.
To be sure, online investor questionnaires, artificial intelligence, and other means can be utilized to extract investor goals and establish a computer-generated financial plan. But goals are tricky things to capture as mere data points. Goals shift and are sometimes vague and inexact. Indeed, sometimes investors don’t even know what their goals are or should be. Still, ESG issues are increasingly important as means to those end goals.
The Forum for Sustainable and Responsible Investment, a trade group, says in a recent report that ESG investing is up 38 percent since 2016, with client demand surging. “The largest percentage of money managers cited client demand as their top motivation for pursuing ESG incorporation, while the largest number of institutional investors cited fulfilling mission and pursuing social benefit as their top motivations,” the report said.
The Forum says its mission is to rapidly shift investment practices toward sustainability, focusing on long-term investment and the generation of positive social and environmental impacts. US SIF members include investment management and advisory firms, mutual fund companies, asset owners, research firms, financial planners and advisors, community investing organizations and nonprofit associations.
Financial advisors may want to turn to the Forum for their own ESG guidance. And investors may want to turn to the Forum to see if their advisor is a member. Just as money managers and institutional investors are seeing successful relationships with clients by embracing ESG methodologies, so too can financial advisors.
There’s a $30 trillion opportunity at hand for both investors and advisors. They should better match to achieve their mutual goals.
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.