CHICAGO -- Advisors who want to retain clients over generations need to embrace sustainable investing now, a Morgan Stanley executive told about 70 advisors at the Morningstar conference.
Doing so should be pain-free, since it no longer requires sacrificing returns, says Chad Graves, a Morgan Stanley managing director who heads impact investing for the firm's wealth management unit.
"We looked at [data] over a 7-year basis," Graves says. "There is absolutely no give-up in performance whatsoever."
This fact is reflected in the size of the sustainable investing market, which has jumped from $2.7 trillion in 2007 to $6.2 trillion in 2014, the speakers said.
Its popularity is such that advisors stand to lose clients if they fail to develop skills to invest using environmental, social and governance screening criteria, according to Graves and two other speakers on his panel: Joe Keefe, president and CEO of Pax World Funds, and Mary Jane McQuillen, a portfolio manager and head of the environmental, social and governance program at ClearBridge Investments. Both ClearBridge and Pax run funds that screen for companies with specific environmental, social and governance attributes. Graves often uses their products.
"We had so many statistics that basically show you that you have only about a 25% chance of retaining a client over generations," Graves told advisors.
Millennials and women express the highest interest of any investor groups in sustainable investing strategies, he said. Advisors who can't deliver this performance to them likely will lose them over time as they make and inherit sums of money, he warns.
"At a bare minimum," Graves says, "you need to be able to speak this language. You need to be able to discuss this with the clients."
To illustrate the yawning gap between client demand and advisors who can serve them on this subject, Graves showed a slide with data from a 2012 Cerulli study in which only 7% of advisors said they were "highly interested" in sustainable investing, 30% said they were "somewhat interested" and an overwhelming majority, at 63%, described themselves as having "little or no interest" in the subject.
They're missing out, Keefe says, citing studies by corporations such as Allianz and Goldman Sachs that have shown that sustainable investing analysis is increasingly predictive of out-performance over the long term.
NO 'LEFT-WING TREE-HUGGERS'
"These aren't a bunch of left wing tree-huggers," Keefe says of the study sponsors. "We looked at over 300 studies. We found the same thing. No performance penalty."
Advisors often fail to offer sustainable investing strategies to clients because they think they need to wait for them to bring up the subject, McQuillen says. "But in many cases," she says, "the client didn't know it was available. So the onus was on the advisor."
In other cases, advisors may hold off on offering a sustainability strategy if they don't personally share the same values as their clients. "And, so maybe that stopped the conversation there," she says. Which is too bad, she adds, given that she's found that her firms' clients are "very, very sticky."
Over the next two decades, Keefe says, the global economy is going to be forced to switch to renewable sources of energy and also to draw more women into roles of leadership in firms.
ASSET GATHERING OPPORTUNITY
Pax, for example, will vote against all male candidates on slates with fewer than two women on its board of directors and, as a result, has helped push many firms to make that change. "On gender diversity on boards, for example, the evidence is overwhelmingly that boards perform better with diverse teams," Keefe says. "Unleashing the economic power of women will unleash the greatest period for growth on the planet."
As they have for decades, Keefe and McQuillen say their firms will continue to pressure companies to disclose more and more information about their operations, thereby improving investors' ability to assess their performance around sustainability metrics.
Sustainable investing is becoming an imperative, the three believe, while also offering advisors a way to differentiate themselves from their competitors.
"It's a huge opportunity to go out and attract assets," Graves says.
Update: An earlier version of this story inaccurately described Pax's investment policy.
Register or login for access to this item and much more
All Financial Planning content is archived after seven days.
Community members receive:
- All recent and archived articles
- Conference offers and updates
- A full menu of enewsletter options
- Web seminars, white papers, ebooks
Already have an account? Log In
Don't have an account? Register for Free Unlimited Access