Hurley: How do you know if this might make sense for a new client?
Wetherby: In all aspects of what we do for clients, it’s not our place to judge or to opine on whether they want to integrate their values into their investing. Our job is to say, “If this is important to you, we can help you do it. If that’s not important to you, what are the things that are important to you?”
Hurley: What percentage of your clients use impact investing?
Lai: About a quarter of them. Of course not 100% of their portfolios are invested in this way, so it’s not a quarter of our assets. But again, our core value is that we meet our clients’ needs. Impact investing is a value-added service offering for certain clients.
Hurley: Do you charge differently for it?
Lai: No.
Wetherby: We also don’t charge if we do a projection, or if we review the tax projection from a client’s CPA. It’s about “What is it that you want wealth to do for you in your life? How can we support and enable that?”
Hurley: Does it have a separate branding strategy?
Lai: We have a multifaceted approach to impact investing. We want to make clients aware that this is an opportunity for them, that this is something that we offer. Part of my role is to educate our clients about that.
Hurley: What about outward communication?
Wetherby: We get referrals from other advisors and are trying to create awareness in the field. But we historically have focused our energy on serving our clients.
Hurley: Do you speak at conferences?
Lai: Frequently. And I participate in a lot of industry networks and working groups. For our clients, we put out a quarterly impact investing digest, making them aware of what’s happening in the field. We publish it on our website because we want to build general awareness around impact investing.
Hurley: What about sub-advising for other advisors?
Wetherby: Our priority is serving our clients well. But if somebody came to us and said, “Hey I have this client, and I’d like you to do the impact part of the portfolio,” we’d be open to that conversation.
Hurley: Does it have liquidity limits?
Lai: That is highly dependent on the asset class and the client’s impact goal. For example, the impact goal may involve affordable housing but clearly we can’t invest 100% of their portfolio [in these strategies]. So we invest as much as possible without compromising other objectives, such as meeting liquidity needs.
Hurley: What about tax efficiency?
Wetherby: There are very tax efficient strategies such as Aperio’s tax-loss harvesting, which has both positive and negative overlays on top of it. It actually generates some tax alpha.
Hurley: Hasn’t socially responsible investing historically involved very high fees?
Lai: Like everything else, it’s yet another one of the considerations that we have to take into account when making an investment decision. We don’t charge more for impact investing and neither do the majority of our peers.
Hurley: How many peers are doing this?
Wetherby: It’s growing. Five years ago, it felt like pushing a rock up a hill. Today the topic comes up at every conference that I go to.
Hurley: Does that suggest at some point it’s going to become a generic?
Wetherby: That’s the dream.
We originally saw the interest from deeply philanthropic clients, typically more female than male. There was also interest from second-generation investors, equally male and female. The third generation does not believe that you have to choose between return and social good. They have grown up with companies who have done good things and also been good investments.
Lai: That consciousness permeates [these individuals’] whole decision-making framework. It affects the products and services that they buy from companies. It permeates how and where they choose to work. If you’re ignoring these issues then you’re missing opportunities as an investor.
Hurley: What would be your advice to your peers who are looking at building a specialty practice?
Wetherby: Start with what clients need and then go from there.
Hurley: What do you want [Wetherby Asset Management’s] brand to look like 10 years from now?
Wetherby: A high-quality boutique firm that is passionate and committed to serving clients with high levels of expertise and professionalism.
Hurley: What other expertise will you have to develop to achieve this?
Wetherby: One area will be in financial education for next generation family members. We do some now, but we will need to be able to do much more.
Hurley: Is there a client size threshold where this becomes uneconomic?
Wetherby: Yes, our minimum is $10 million. Our growth plan is to add smaller numbers of larger clients.
Hurley: But not all of your current clients are that large, right?
Wetherby: We decide whether we can serve them well or not. If not, then what we’ve done historically is to recommend three other advisors. We help them interview [the other firms], we transfer all the data, and enable a smooth transition.
Hurley: That’s got to be hard.
Wetherby: It’s really hard.
Hurley: How do you think new technology will facilitate what you are trying to do?
Wetherby: It will make us more efficient but with high-touch customized businesses, there are certain things that aren’t scalable.
Hurley: What about the next 10 years keeps you up at night?
Wetherby: A prolonged environment of low returns. Life expectancies are lengthening. I worry about what this may mean for people’s financial plans.
Hurley: What was the most pleasant surprise you’ve had in this industry over the last decade?
Wetherby: How quickly people have embraced objective advice without structural conflicts. Fifteen years ago, I had to spend the first half hour of every meeting explaining why we were truly objective and different from the brokerage and the product models.
Hurley: What do you think is the most pleasant surprise you’re going to see over the next decade in the industry?
Wetherby: I love the idea of businesses more accurately reflecting all the true costs. My hope is that our industry becomes more accountable over the next 10 years.
Hurley: Thank you very much.
Wetherby: Thank you.