Third, future successful wealth managers will increase their investment value added by going beyond just generating returns that meet their clients’ financial objectives. They are also going to help clients to meet their social goals.
To be sure, “socially conscious” (or “socially responsible”, “economic, social and governance”, etc.) investing has been around for decades. Some of the robos have even included these kinds of portfolios in their offerings. However, this type of investing has historically largely been a negative screening process that excludes certain types of companies (such as tobacco, guns, etc.) and often has produced abysmal investment returns.
Recently, a handful of leading firms (such as Wetherby Asset Management) have developed a much more sophisticated generation of this type of investing. Known as “Impact Investing,” it both produces attractive returns while at the same time evaluating and measuring the social benefit that individual companies produce during an investment period. And clients can now quantify how much social benefit their portfolios are creating on an ongoing basis.
Many of the industry’s leading wealth management firms are racing to develop similar investment capabilities. Why? Because they can see its importance to large numbers of current and prospective clients. Either they develop these capabilities or they will find themselves at a substantial competitive disadvantage in the future. They also can see that it will be very hard for clients to do this kind of investing on their own.
I recognize that for many readers, all of these ideas may sound a bit premature, if not a wee bit dramatic. Right now, keeping existing clients and capturing new ones isn’t very hard. And not too many industry participants are getting puckered up.
At the same time, however, many of smartest people in this industry recognize that it’s going to be hard to keep charging a high price for what effectively has already become a commodity. Thus, they are racing to upgrade the value added that they provide in their investment management function.
As an outside observer of the industry and a believer in the efficiency of markets over time, it will be interesting to see what happens when clients do figure all of this out and things suddenly begin to change. I’m not sure I’d want to be in the position of having to play catch-up.
Mark Hurley is the founder of Undiscovered Managers and the co-founder of Fiduciary Network.