Profiles in Excellence

3 ways to meet clients' social causes


Tim Kaijala
Director of Investment Research, O’Brien Wealth Partners

Matt Krantz
Senior Financial Writer, Capital Group

Key Takeaways

  • Clients are increasingly asking for social causes to be reflected in their portfolios.
  • Advisors can educate clients about the traits and opportunities of a socially responsible portfolio.
  • Relationships between clients and advisors can be strengthened as portfolios can create financial and societal results.

Bell-bottoms and psychedelic rock — two touchstones of the 1960s — may still be considered relics of the past. But another trait of the seismic sixties, social activism, is back, and it’s something your clients may want to see reflected in their portfolio.

One in five Americans joined street protests or political rallies between 2016 and April 2018, according to a Washington Post-Kaiser Family Foundation poll, as the country is witnessing a greater sensitivity to social causes.

Clients may not leave their political views in the street when they come into your office to discuss their portfolios. That’s a reality Tim Kaijala, director of investment research at O’Brien Wealth Partners, is already noticing. Socially responsible investing comes up in about 10% of the conversations advisors have with their clients at the $580 million assets-under-management advisory firm, he says. Kaijala works closely with advisors to make changes to the firm’s model portfolios.

Clients will tell advisors they want to make a statement with their portfolios, “I want to make the world a better place for my kids and I want to leave them money,” he says. “These questions come up very organically.” This makes so-called ESG, or environmental, social and governance, something the firm sees as increasingly a core offering. Since being founded in 1986 by a Harvard Business School professor, the firm has brought on clients with an average net worth of $2 million to $5 million. The firm also works with area churches where the mission statements often include social responsibility.

Kaijala offers three guidelines for advisory firms who wish to be prepared for such client wishes, including:

  • Be ready to address social responsibility. If you’re not being asked about social investing, expect to be. Client demand for social issues to be reflected in portfolios has only intensified since the 2016 presidential election, at least among O’Brien’s clients. This is a way, an outlet, for people to try to implement a change outside of the common legislative way, he says. Clients often respond positively to the idea “you can implement change from within [companies], rather than regulating it externally from government.”

    Clients who are interested in social issues don’t necessarily fall into a specific demographic, either, says Kaijala, who works closely with advisors. Interest comes “across the spectrum,” he says. Typically, though, social responsibility is more common with clients with children and families. Social responsibility also can be an important talking point with female clients, too, Kaijala says. Many female clients gravitate to the idea their portfolios can be about more than just returns. Social responsibility can be a way to get them talking more about money, he says.

    O’Brien’s advisors have found there’s a way that works best in client conversations when addressing social goals. Avoid the temptation to dive into complex “ESG” metric, such as revenue or governance rules. Rather, stick with the causes, like climate change or fossil fuel divestment, which resonate. “We really try and talk about what’s important to people,” he says.

    It’s also important for clients to understand any tradeoffs from social investing. For instance, if commodity and energy stocks rally, many social responsible funds might lag the traditional benchmarks, he says. Making sure clients are clear on what to expect is important in social investing, just as it is with traditional investing. “It doesn’t matter if you’re doing ESG investing or normal core investing, the expectations are incredibly important for clients to understand what they’re [invested] in and what to expect,” he says.
  • Find where you add value. O’Brien has added social responsibility to its portfolios without completely changing its process to selecting investments. For instance, O’Brien has invested primarily through mutual funds and has done so since the 1980s. So rather than doing due diligence on individual stocks and bonds for social concerns, Kaijala filters mutual funds for those with mandates that fit clients’ wishes.

    Kaijala seeks fund managers with all the standard skills he looks for ranging from results to risk controls and the proper security-level due diligence. But now there’s the additional filter for fund managers who are involved in advocacy on social issues and how successful they are. Specially, this means the investment managers use the clout from the shares they own to engage in proxy conversations with companies. Kaijala uses the social scores available from Morningstar to screen for funds. He also contacts fund managers directly and learns about their process.

    Existing model portfolios can still be used. O’Brien plugs in the socially responsible funds into the same asset classes in models. Given the popularity of social investing, he’s able to find many options to choose from.

    But how quickly to shift a portfolio to social responsibility depends on the client. Some want to “tip toe into the waters,” and in that case Kaijala will add one or two socially responsible funds to see if the client is comfortable with the results. A high degree of customization is still needed. Some clients, for instance, like the idea of social responsibility in their equities, but not fixed income. Some clients might be more interested in climate change or religious values. “There’s a certain level of customization that goes into this,” he says. “I think that there always will be.”

    Kaijala constantly monitors managers’ decisions, sometimes down to the security level. If a manager owns an integrated energy company, for instance, Kaijala will ask why. The energy firm might be making industry-leading changes in a sustainable way. “The onus is on us … to make sure we are doing the due diligence and to make sure that we’re doing the proper monitoring of those strategies,” he says.
  • Follow up with progress both financially and socially. It’s important to discuss results — both financially and socially — with clients during portfolio reviews, Kaijala says. “We really like to approach it from this concept that companies can do well and do good at the same time,” he says. Clients respond well to stories that show, for instance, companies that have energy savings programs that not only help the environment, but reduce their costs, too.
    Socially responsible companies can also enjoy a reduction in risk exposure, which can benefit investors. Recent scandals over data security and environmental accidents can damage a firm with governmental, reputational or financial punishments. With our clients, we talk about “risk reduction” of socially responsible investing and the potential to deliver better results by avoiding losses from preventable accidents or reputational shocks.
    Already, O’Brien is moving more toward a socially responsible focus firmwide, Kaijala says. When clients see their portfolios being used to bring about positive societal change, “it’s a huge win for the world in general,” he says. “My clients love hearing those stories.”




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