Impacting investing: trends, issues and capabilities
4 July 2019
Given the potential effect on financial advisers’ businesses, there is great interest in the trends of philanthropy and social and impact investment and how different generations approach them. Differencescertainly exist, but what unites the generations is the motivation to make the world a better place.
In this, family values and ethics provide a continuum and, as has always been the case, personal life experiences contribute new energy to philanthropists’ efforts. The shifts between philanthropy and investment reflect the exploration of how best to effect the changes sought. We recently discussed philanthropy and investment trends among the next generation and millennials and the essential requirements when looking for advisers, with Natasha Mueller, an active impact investor, and Kydd Boyle, co-founder of Horizons (a social enterprise for future leaders).
Both emphasised that millennials wanted to go beyond a simple financial transaction or donation to worthy causes. Natasha states, “Next generations want to deploy more than their financial assets and to put their emotional, social and political capital to work as well. Next generations want to be a part of something and to join the movement of whatever focal cause they feel passionately about, so whereas previously wealth holders would write a cheque or transfer the funds, the trend I see most obviously in next generations is the deeper engagement and passion they direct to their philanthropy.
The choice of cause(s) to support goes beyond a gender divide and tends to be focussed on those problems that have had a personal impact or global problems that are difficult to solve, such as climate change.
There has been a recognition that philanthropy alone will not cure the world’s ills and that some of these global problems will require interventions and cooperation on an international basis. There has also been a growing sense that capitalism has lost its conscience and disquiet about income inequality, which is leading to a cultural and political shift. At the same time, the tools which philanthropists can use to focus their energy and passion have changed. The choice of cause(s) to support goes beyond a gender divide and tends to be focussed on those problems that have had personal impact or global problems that are difficult to solve, such as climate change.
Technology and the emergence of social media have provided a more accessible platform to promote causes and influence or pressure policymakers and legislators. Kydd observes, “Millennials, who have been lucky enough to earn or inherit significant wealth, have been impacted by campaigns such as the ALS Ice Bucket Challenge (raising awareness and money for motor neurone disease) and inherently understand the power of social media. Harnessing this power means that it costs less to launch and maintain a campaign now than it would have done in, say, the 1980s. It is therefore unsurprising that we have seen the rise of a range of campaigns such as #1millionchildren initiative or Unite for Mental Health.” When it comes to using their wealth, millennials are concerned about making their money go further and are interested in finding sustainable interventions and solutions. In philanthropy, we see this reflected in a desire to learn about a topic and understand the issues in order to direct effort and resources as effectively as possible.
The arrival of the internet and the mass of information now available online has undoubtedly made research more accessible. In the management of their wealth, we see a growing wish for personal values to be expressed in their investment portfolios. At one level, this has led to the sustainable and responsible investing movement and the integration of ESG (environment social and governance) criteria. The development of social and impact investment is offering the prospect of achieving returns measured in more than merely financial terms. As Natasha says, “Most next gens don’t see a trade-off between financial and social/environmental returns and believe they can go hand in hand – a massive deviation from the previous generation’s thinking and one of the reasons that impact investing has become more of the norm.” While many businesses may long have been delivering more than financial returns, social and impact investing is bringing intention to the fore in investment selection and outcome measurement to the evaluation of success.
What are the implications for advisers?
Millennials are looking for advisers who understand their values and can support their engagement. Natasha observes that “value alignment with my advisers is essential to me. They need to understand my motivation for doing impact investments and philanthropy and be able to guide and support me so that both financial and social returns are achieved. At the same time, it is also important that my advisers challenge my thinking and make me think outside the box.” Kydd adds, “The best advisers will be able to be part of a client’s wealth ownership journey – they will be a rudder rather than an anchor. They will use their indepth knowledge of financial opportunities, risks and restrictions to find a realistic solution for client goals.” Given millennials’ wariness of banks and financial institutions, the building of relationships and trust may take longer than in the past and require a more holistic approach than one based simply on financial competence. The investment of time and effort will mean that not all millennial clients will be profitable from the outset, certainly based on a traditional fee model, but it does offer financial advisers the potential for a closer enduring relationship with their clients.
Leaving the final words to Natasha, she nonetheless offers hope for financial advisers to maintain their role as wealth passes from one generation to the next, “Another aspect that is important for me is the notion of continuity. Although my motivations and approaches to investing and philanthropy differ to a large degree from those of my parents, the values that I hold are a result of my upbringing and it is important to me that they continue to be reflected in my activities. Family offices such as Sandaire and family advisers are therefore essential in enabling that value system and ‘more to wealth’ attitude to be passed down the generations.”