Clients want their portfolios to do well, of course. But many also want them to do no harm or even to do good, to be aligned with the investor’s values. Such requests can be challenging, advisors say.

“Each client seemingly has a different outlook on what a company should do,” said Jonah Kaplan, a wealth manager at Beta Industries in Sherborn, Mass.

Sometimes environmental concerns are the priority, he said. Other clients might prefer companies with women or minority management. Still others have religious views about which companies that they want to back or avoid. Consequently, he continued, it can be difficult to come up with a portfolio that passes muster while fulfilling fiduciary responsibilities.

To be sure, the mutual fund industry has attempted to serve this niche by creating baskets of stocks labeled “ESG,” for environmental, social, and governance standards. But that designation often has limited usefulness, said Kaplan.

“The ESG definition has become very broad,” he explained. It can make more sense, he said, to have “a managed portfolio of companies rather than a broad mutual fund, to more accurately align with [each client’s] values and expectations.”

Understanding Limitations
Satisfying these values and expectations can be complicated. “[It’s] a very difficult thing to execute on,” said Chris Galeski, a partner at Morton Wealth in Calabasas, Calif. “As financial advisors and planners, it’s not our job to put our values on someone else’s money. It’s our job to best help them save, find, and make money in the pursuit of getting the most life out of their wealth.”

Clients must be comfortable with how their money is invested and the impact it’s having, he said, but they should also understand the limitations of what an advisor can do. “Companies don’t check all the boxes that you might want,” he said, “and it can be difficult to maintain diversification” if you only allow a limited scope of corporate activities.

That does not mean, however, that his firm does not try to do the right thing. Clients are encouraged to “have a sound investment approach and integrate sustainability goals, if that is important to them,” he said. “Sometimes you just need to look outside the traditional paths in order to get access to strategies that support your values.”

Not Insurmountable
Indeed, many advisors do find solutions to value-based preferences. “There is no doubt that integrating one’s values or mission into an investment portfolio is a challenge,” said Jeff Finkelman, managing director of sustainable investing at Fiduciary Trust International in Lincoln, Mass. “But it is not an insurmountable one. After all, investors are used to balancing their desire to maximize financial return with more mundane considerations such as their liquidity needs, tax sensitivities, time horizon, and risk tolerance.”

Finkelman and team spend “considerable time” helping clients “articulate their core values,” he said, and thinking through the role they want their capital to play. That’s important, he added, because there is a difference between “investment strategies that simply align with a client’s values and beliefs and those that promise to generate a positive, real-world social or environmental impact.”

It’s crucial to define precisely which issues are most paramount for clients, said Spencer Betts at Bickling Financial Services in Lexington, Mass. “Focus on finding a good fit for their most important filters,” he said. “Let the clients know the limitations of ESG upfront and try to match their long-term financial goals with their core values.”

Faith-Based Investing
In some cases, those core values are faith-based. Aquinas Wealth Advisors, a wealth management firm in Pittsburgh, specializes in this niche. President and CEO Chris McMahon said his company uses a technology called the Faith and Finance Score, which is designed to help investors see how well their investments align with their faith.

“Technological advances and AI are allowing investors to see behind the curtain and understand what they are supporting,” he said. “They are also demanding competitive returns, which they are now able to achieve.”

Another firm that specializes in a faith-based approach is Azzad Asset Management in Falls Church, Va. “[Our] baseline is our negative screens that filter out certain companies,” said Joshua Brockwell, the firm’s investment communications director. “But some clients have more specific wants or needs.”

So, in addition to negative screens, the firm is actively involved in shareholder advocacy to “[engage] with certain companies that we own but feel could be better corporate citizens,” he said. It’s not just a matter of proxy voting. “Proxy voting is a baseline articulation of values,” he said. “If you don't think a CEO should make 250 times the median employee salary, proxy voting is how you express that.” But for some of his clients, that’s not enough.

“We find engagement with corporate management and even filing those resolutions that end up as items to be voted on in a proxy ballot even more impactful,” he said.

Apples And Oranges
Nevertheless, plenty of experts are reluctant to recommend socially conscious or faith-based investing. “As my client’s financial planner, my job is to help them meet their financial goals,” said Bridget Venus Grimes, president of WealthChoice in Coronado, Calif. “We invest in diversified portfolios that we believe will help them do that.”

The one and only purpose of these portfolios, she said, is to generate financial success. “Choosing to screen out certain types of companies for any reason may impact client performance,” she insisted. Clients who are concerned about other issues are encouraged to “align their values with their choices in life, like consumer spending,” she said.

Steven Schacter of Forest Hills Financial Group in Palm Beach Gardens, Fla., and New York City, might agree. Personal value systems and investing strategies do not mix, he said. “One is apples, the other is oranges.”

Yet Bickling Financial’s Betts does not feel that way. “I’ve had clients in the past say they would rather make less money than invest in a certain industry or company,” he said.