Advisors are split almost equally on whether impact investing is a short-term or a long-term trend, according to Fidelity Charitable.
Sarah Gelfand, vice president for social impact programs at Fidelity Charitable, hopes that thinking will shift dramatically in the direction of a long-term trend in the future.
There is a growing interest by iInvestors, particularly millennials and Gen Xers, to engage in impact investing, but financial advisors have not caught up to the necessary planning to accomplish that, Fidelity Charitable said in a recent study of advisors’ perceptions about impact investing.
“While more than 70% of affluent millennials and Gen-Xers report having made an impact investment, only 49% of advisors believe that the practice of investing with social or environmental purposes in mind is a long-term trend, and only 53% of advisors say that they understand the topic well,” Fidelity Charitable said.
The study, “Impact Investing on the Rise: How Financial Advisors are Adapting,” included 175 financial advisors and 75 attorneys and CPAs. It defines affluent investors as those people who have investible assets of at least $100,000 and donate at least $10,000 to charity in a year.
“Major gaps exist between financial advisors’ understanding of impact investing and their younger clients’ interest in the subject,” the study said.
“While impact investing has grown tremendously over the last several years, this study indicates that there is still a strong opportunity for advisors to expand their knowledge of the sector,” added Gelfand.
Only 38% of advisors with less than $100 million in AUM report that they understand impact investing well, compared to 62% of advisors with more than $100 million in AUM. “This indicates an opportunity for all advisors to broaden their knowledge in order to initiate more impact investing conversations with clients,” Fidelity Charitable said.
Advisors said they have discussed impact investing with fewer than half of their clients, even though 58% of consumers are interested in investing in companies with good social and environmental practices, and 44% of investors said that help from a financial advisor would encourage them to make an impact investment, according to the study.
In addition, advisors are not exploring options for impact investing beyond mutual funds. Only 38% of advisors think of making loans to charities as a way to engage in impact investing. For instance donors can make a recoverable grant, which is essentially a short-term loan, to charitable organizations that need bridge financing, Gelfand said.