Wealth Clients Will Increasingly Expect Values & Social Alignment


Working closely with advisors for nearly 20 years and spending thousands of hours talking about their interactions with clients, one consistent theme shared by each of them is a passion for helping clients achieve their goals.  I often hear words like ‘It’s my job to make sure my client’s investments don’t keep them up at night!’ 

Those conversations have historically been focused on life goals like college savings, retirement and wealth transition.  From this information, advisors could construct and manage portfolios which would achieve their client’s goals.  Clients sent their kids to college.  They retired.  They transitioned their wealth and most everyone was happy.

However, wealthy clients are increasingly asking for more:  They want to achieve their life goals, but they want more transparency into how those goals are achieved.  Specifically, part of ‘sleeping through the night’ for many comes with the reassurance that their beliefs and values are reflected within their portfolios. 


Historically, advisory firms have run screens against ‘sin-stock’ lists.  That process would exclude a set of assets from the portfolio.  But in 2017, clients are asking for far more personalization and purpose behind their values-based portfolios.  Stock screens also inherently throw off the careful balance of a portfolio by removing a security which (in theory) was fulfilling a specific need for the portfolio.  In that sense, clients would need to understand that their risk and return for the portfolio were likely to be impacted (in some way). 

Several more modern firms employ the converse of screening by ensuring the companies which meet the profile of the client’s values are included in the portfolio.  In this way, they add ‘good’ firms into the portfolio to achieve client peace of mind.  However, like screening, the client would need to understand that risk and return are impacted (in some way).

Themes and SRI funds

Another approach that is available to investors is incorporating social impact funds - which aim to maintain a specific return and risk profile while investing in a specific area or theme.  ‘Green’ funds which might be heavily weighed in solar or other sustainable industries are an example of this.  Targeted funds like these achieve their specific goal and can make investors feel better about their social impact, but leave the broader portfolio’s impact in-question and often focus myopically on a single ‘value’.  More recently, firms like Motif produce buy-lists and investable accounts allowing clients to more closely hone their portfolio toward their values.  However, like screens, these approaches inherently assume that maximizing a client’s return is not the only (or even the highest) goal. 

Additionally, because the concept of ‘good’ is entirely subjective, any fund or manufactured portfolio which assumes pre-defined criteria of a value, is likely subject to suspicion by the end investor.  For example, a Catholic-values fund might include a firm that manufactures firearms, or another that has a high net-carbon footprint.

Impact Investing

More common among the ultra-wealthy ($50M+) is impact investing where advisors work to impact specific causes or social outcomes with a client’s investments.  Often these portfolios are a portion of the overall portfolio and are effectively measured not on the monetary return but on the social benefit derived from them.  In many ways, this is akin to foundation or endowment grants, but implemented by their wealth manager or family office firm.  These portfolios often take significant attention and expertise in the area which put them out-of-reach for many investors.  They also often tend to focus on a single set of values/impacts at a time which mean the remaining portfolio may not be aligned to that goal.  For example, a wealthy client can allocate $15M to help fund the building of schools in Central America for girls while not knowing that in another part of her portfolio, she’s an equity owner of a cacao-processing firm with a horrible child worker record.  A more public example happened to CalSTRS a few years back.

The Future

It’s clear that the current set of solutions for investors needs improvement.  There are no easy ways for an advisor to ascertain the values of a client (or prospective client), compare their current portfolio against those values, and then propose a re-configured portfolio more in alignment to their values.  Further, there are no easy ways for clients and advisors to iterate through this conversation over time as part of the ongoing in-person (or digital) discussion.  Even when products exist, they are not optimally implemented.

Luckily, two factors are rapidly moving toward the forefront which should unlock this offering for more wealthy individuals:

Trend One: Standards

Until recently, ESG data aggregators (those firms that collected and sold firm-level details about environmental/social/governance factors) had problems with questionable data quality.  The standards of reporting were not well known or agreed-upon across the industry.  The criteria used for ‘Executive Diversity’ might be different firm-to-firm. 

In 2010, researchers at Harvard began to understand the need for a unified standards organization (modeled on the FASB) to provide investors with more reliable data.  In 2011, the Sustainability Accounting Standards Board (SASB) was born.  It’s mission and progress has been to align the reporting criteria and educate corporations on the benefit of reporting their non-financial impacts. 

Trend Two: Modern Technology

In investment circles, there’s an old saying ‘institutional investment trends eventually make their way into wealth management trends’.  This trickle-down trend has worked for asset allocation, modern portfolio management themes, performance attribution/contribution and risk analysis.  In many of these cases, the data and technology that enabled efficient $1B pension portfolios now works for $1M fiduciary portfolios.  So too it will be for ESG/SRI focus.  Tools already exist which can screen through thousands of data points across thousands of stocks and bonds and report, in great detail, on those impacts.  Similarly, optimizers and complex math have made their way down-market to more and more wealth management desktops.  Cloud-based tools, such as Addepar, are already on many advisor desktops and are delivering complex calculations in milliseconds which used to take days.  Add to this the increased personalization of investment portfolios, wealth/financial planning tools and a desire to digitally engage at a deeper level with our clients beyond asset-picking (read: ‘DOL’), and the tools are clearly there to deliver on the client need.  It is only a matter of time before these elements make their way to personalized ESG/SRI portfolios for wealthy clients. 

Conclusion & Moving Ahead

Trends, standards and capabilities aside, this is still a very complex proposition for any wealth firm to entertain.  Even those that focus on ESG still have work to do.  For those interested in offering more visibility and personalization to their client’s portfolios, the time to start working on this is now:  Small, incremental steps generally work best and learning-as-you-go tends to be the least-risky approach.  Reaching out to the SASB and engaging with SRI/ESG forums also help advisors to understand the trends and approaches others are taking.  However, the best advice I offer my advisory clients is this: Start the conversation with your clients about their values and wishes… before another wealth management firm does!