Financial advisors who want to attract and retain younger investors may want to have their SRI ducks in a row.
Surveys and anecdotal trends are showing that many Gen Xers, roughly between the ages of 28 and 44, want their money invested in companies that don't damage the environment and do promote socially responsible policies.
In a January 2008 survey, Northern Trust found that "millionaires from Generation X, aged 28 to 42, are proving to be more sophisticated in their investment style than older millionaire generations because of their interest in alternative investments and new investment products, such as exchange-traded funds (ETFs) and structured notes,'' and "41 percent of the Gen X millionaires who are aware of socially responsible investments have some money in these accounts; in contrast, only 18% of baby boomer millionaires who are aware of socially responsible investments have actually made any."
"What you are starting to see is a generation that intuitively accepts the idea that there are opportunities for investing in a more responsible way, particularly on environmental issues. Younger clients are much more open to the idea of SRI investing than the previous generation.And you see, particularly with inherited wealth, that the young client is generally much more receptive to the idea of looking at their money and the impact it has on the world," says Matt Patsky, CEO of Trillium Asset Management, Boston, with about $1 billion in assets and about 1,000 accounts.
Patsky estimates that about one third of Trillium's investors are ages 28-44, but that the number is "growing rapidly."
"That age group has issues with inherited wealth. They come in and say, 'I don't want to hold a portfolio of ExxonMobil and a bunch of big companies I know haven't been taking positive steps to improve the environment. I want to invest in companies that are doing the right thing in terms of their footprint,'" Patsky says.
At New Ground Social Investment in Seattle, founded in 1993 and which has $100 million in assets under management, younger investors account for about 60% of the client list. These younger clients require their investments to mirror their personal values, says Bruce Herbert, New Ground's chief executive. Herbert says the firm's business has "increased exponentially, 1250%, in the last five-and-a-half years.
"The bad news of recent years-starting with Sept. 11 and including the accounting scandals and bank collapses-has propelled these clients into taking a deeper look at the global impact of their investment. But we're seeing that everybody who is investing is taking a more an active role in their investments."
Herbert says his younger clients are engaged in philanthropic activism, too. "They're saying, 'I want to give a lot of this away and make sure it has a good impact.' We show them it's better to build a portfolio that can give four or five times more over a reasonably long lifetime than if you were to give a sizeable portion right here and now. We're telling them these (SRI) issues need sustained attention because they don't get resolved right away."
Herbert and Larry Dohrs, New Ground's senior vice president, are 50. Although younger investors don't insist that their financial advisors be contemporaries, Herbert said, they are looking for advisors who share their values.