People who live in Beverly Hills are probably better known for their glamorous lifestyles than their righteous moral compasses. Yet some financial advisors have found beneath the glossy exterior of the legendarily materialistic enclave a sizable niche of people looking to invest in line with ethical, religious or environmental beliefs.

Mary King, a Merrill Lynch vice president and wealth manager, is one of those advisors. Working out of her Orange County home and Merrill's Beverly Hills office, she serves 50 clients and manages some $250 million in assets in accordance with those clients' ethical guidelines. "I could probably expand my client base more, but I'm putting my career on cruise control right now because I have a young child," says King, whose client base consists mainly of those interested in faith-based investing.

About 400 miles up the California coast in San Francisco, Merrill Lynch private wealth advisor Hilary Giles helps people who want to invest all or part of their portfolios along environmental and social guidelines. A good number of these clients have built their fortunes in technology and biotechnology stocks, among other industries in that area. "Many of my clients drive hybrids and have solar panels on their homes, so their interest in environmental investing isn't too surprising," she says.

The notion that advisors like Giles and King have built thriving practices around values-based investing might seem at odds with their employer's recent financial woes and ethical lapses. Just two years ago, Merrill Lynch had billions of dollars in toxic debt on its balance sheet and played no small role in helping ignite the Great Recession. Stories about former Merrill CEO John Thain's $87,000 office rug and his last-minute handout of billions in bonuses while the company was struggling to survive did little to help Merrill Lynch's reputation. Soon after Bank of America acquired the company in September 2008, the bank's stock suffered crushing losses, and skeptics said that the $29 per share purchase price, a 70% premium over Merrill Lynch's pre-acquisition value, was too high for a firm with such huge liabilities.

Yet even in the heat of the turmoil, Merrill's field force tried to contain the damage its reputation had suffered among clients. "We emphasized that client assets at Merrill Lynch were safe and in no way co-mingled with the firm's assets," says Rehana Farrell, a managing director at the firm's Managed Solutions group. As for socially responsible investors' concern about Merrill's recent malaise, Farrell says, "It really hasn't been a hindrance at all. The subject doesn't come up."

Back On Track
With both the stock market back on track and real estate perking up, things have improved considerably for both Bank of America and its new brokerage. Contributing to that growth is Merrill's value investing business, which has grown steadily and become more organized over the last few years. That growth didn't start with dictates from company headquarters, but with grassroots efforts by the firm's advisors.

The most cohesive and well-organized group in the values-based investment area is Merrill's Christian Focus Group. Established four years ago by two advisors with Christian clients, it has expanded to 650 advisors throughout the country, and more than 300 of them have joined in the last year alone. Advisors in the group come from Houston, Tennessee, Beverly Hills, Chicago, Boston, New York and other areas of the country.
Besides their religious directives, these clients might also ask their advisors to take into account concerns such as the environment.

"This isn't only about Christian values, but about values in general," says Farrell. "We even have some Jewish advisors in the group who want to understand their Christian clients better."

In the last year, the firm has stepped up its efforts to educate advisors in the field about what's available to investors who want ethical, environmental or religious screens, says Jay Morrison, a vice president at the Managed Solutions group. While there are no figures on how many investor dollars are allocated to socially responsible or ethically screened investing, Morrison says that about 10% of those clients who use separately managed accounts, (those with a $250,000 investment minimum) have identified social or religious values as important. Besides the selling agreements Merrill has with some 60 values-oriented mutual funds, the company also offers socially responsible separately managed account platforms guided by religious values.

SRI clients run the gamut from small investors to the ultra-wealthy. "We have Bible Belt investors with a few thousand dollars, people with multimillion dollar accounts, and everything in between," says Farrell. "These are all people who want the opportunity to advance philosophical and moral ideals and influence outcomes through investment."

Attracting high-net-worth investors is a high priority at any firm, and Merrill is no exception. Ethical investing resonates with many members of this sought-after group. "Our mission at the private banking and investment group is to help people like you, at the top tier of wealth, maximize and manage your wealth and legacy," says chief investment officer Christopher Wolf in a video appeal. "For many people, that means incorporating individual goals, objectives and values into the wealth management process."

But it's the legwork of individual advisors walking the SRI walk that has helped the firm ramp up its presence in the values space. One of those advisors, Mary King, became interested in socially responsible investing in the mid-1990s when she was a junior at Harvard Divinity School majoring in economics and religion. "It was exciting to me that my faith and spirituality could be applied to the financial markets," she says.

During her junior year in college, she became an intern at KLD Research & Analytics, a leading socially responsible investment firm in Boston. The firm needed someone to research issues of concerns to Catholics, and King's background fit the bill perfectly. Her thesis, titled "Catholic Investing-The Effect of Screens on Portfolio Returns," was published in the Journal of Investing in 2001. She concluded that a portfolio screening for religious values performed almost the same as one that didn't.

After graduation, she worked for a few years as a writer and researcher for a religious Web site. "When I gave speeches, people would tell me they had trouble finding financial advisors who could integrate their principles into the investment process," she recalls. "I realized there was a niche that needed filling."

She joined Merrill in 2002, and began the slow process of building a client base by "putting a lot of miles on my car, going out to lunch a lot, gaining a few pounds and getting rejected." Her initial clients came from conferences and Christian singles groups.

Today, she uses third-party money managers and separately managed accounts for her clients, who have a minimum of $1 million to invest and come mainly through referrals. She maintains her own list of screens and approved stocks, and checks to make sure outside managers are abiding by her guidelines.

Although most of her clients follow faith-based directives, she says religion and social concerns share a lot of common ground. Religious screens for tobacco, alcohol, weapons, nuclear power and gambling, for example, are present in many SRI mutual funds. To those, she adds additional screens for companies involved in abortion or pornography.

Many forbidden firms might seem relatively harmless at first glance. Comcast, for example, gets the boot from King's portfolios because it derives revenues from adult films. She says many faith-based investors, particularly women and those under 50, want the environmental screens as well as the faith-based ones.

When Hilary Giles started at Merrill seven years ago she didn't intend to specialize in environmental investing, although her husband's job at a solar energy company certainly sparked her interest in the field. Her clients nudged her in that direction when they began asking how they could invest in ways to improve the environment.

Today, she and her partner manage some $500 million for clients of the firm's private banking and investment group, which requires a $10 million investment minimum. They typically range from ages 30 to 50 and "tend to be progressive both in their portfolio construction and philosophies." About one-third request green screens or preferences for clean energy companies, either as one-off investments or as part of a more encompassing green portfolio.

For some clients, Giles uses alternative energy exchange-traded funds as well as socially responsible mutual funds to implement strategy. She also offers a more tailored approach and is currently working with two outside firms on a special portfolio for a large client who wants to exclude companies responsible for toxic emissions. Products from Merrill Lynch, such as a private equity fund that focuses on sustainable forestry, also find their way into the portfolios.

Because many of her clients are also interested in philanthropy, Giles offers notes from Calvert Investments. The proceeds of the notes, which require a $10,000 minimum investment, are used to fund community centers, low-income housing and other charitable causes. While the interest they pay is low, ranging from nothing to 3%, her clients don't really seem to mind.

"My clients are young, so they are not ready to give large sums of money away," she says. "At the same time, they want to have an impact and support causes they believe in."