The Markets November 28, 2016

More Importance Placed on ESG Investments by Millennials

The Millennial generation ranked ESG factors as equally important as investment outcomes when considering investments decisions, according to a survey.
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With one-third of institutional investors planning to increase portfolio allocations to impact investing in the coming three years and investment providers that serve retirement plan sponsors seeing opportunities for outperformance in environmental, social governance (ESG) investments, it may be of interest that a survey found Millennials (ages 18 to 35) are more likely to place greater importance on ESG factors than other investors (ages 36 and older).

According to the Schroders Global Investor Study 2016, which surveyed 20,000 end investors in 28 countries, the Millennial generation ranked ESG factors as equally important as investment outcomes when considering investments decisions.

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Opinions between the two age groups differed the most on world-based social outcomes, like poverty and climate change, with Millennials rating these highly (7.2 out of 10) compared to other investors (6.4 out of 10), on average. The study also concluded that Millennials were more likely to actively pull funds from companies with poor ESG records, companies associated with weapons manufacturing/dealing and those linked to repressive political regimes.

Most groups of investors are looking for good corporate governance, with the issue topping their list of ESG concerns. However, Millennials again appeared to show more concern, rating it an average of 7.4 out of 10 compared to older investors rating it 7.0 out of 10. 

The study found that global investors would stay invested in ESG investments longer than usual, with 82% indicating they would do this. More than one-third (38%) said they would stay invested in companies with positive ESG philosophies for at least two years longer than they would stay invested in their usual investments.

On average, global investors rated ESG issues as less important when making an investment decision, than tangible, long-term growth, which they rated 7.8 out of 10. However, global investors still rated positive ESG factors highly at 6.9 out of 10 on average, indicating a high degree of importance placed on both issues.

“The interest in ESG and corporate governance issues for investors only looks set to grow given its prevalence amongst Millennials,” says Jessica Ground, global head of Responsible Investing at Schroders.

For more information about the study results, visit www.schroders.com/us-gis.

Data & Research November 28, 2016

Americans Seek Diversified Investments and Advice

Affluent investors seek out advice from multiple providers because they are hesitant to trust a single source, a new analysis suggests. 
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Results of a new Hearts & Wallets analysis suggest advice is not a zero-sum game; participants are happy to pay for advice that is worth getting, whether it is delivered face-to-face or via a digital platform.

At a high level, affluent older Americans have increased use of both digital and live advice resources, according to Hearts & Wallets. As a result, more investors are needing to carefully blend and incorporate different sources of advice to which they may assign different levels of trust and confidence.

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The study, “How Older Affluent Investors Blend Live and On-line Advice & Reactions to BIC and Concepts for Aging,” shows one in four older affluent investors use both digital resources and a paid financial professional. Digital use is growing for all older investors, researchers note. In particular, digital use jumped 8% in one year for late career investors ages 53 to 64.

“Older investors have a growing appetite for both digital and live advice,” says Laura Varas, Hearts & Wallets founder and CEO. “Blending behavior spikes for emotionally charged, high-impact decisions like optimizing Social Security when no one source provides confidence.”

As financial services providers build solutions for older investors that incorporate some aspect of technology, Hearts & Wallets argues they should “understand the different types of older investors, the widely varying ways they use digital and live advice, and what they’re willing to pay for.” 

Out of 59 million older U.S. households with $32 trillion in investable assets, the study focuses on affluent consumers with savings of $500,000 to $5 million, who are most likely to blend online resources and paid financial professionals. In total, this market represents 4.5 million households with $8.5 trillion in investable assets.

According to Hearts & Wallets, nearly 2 million households in this group “sometimes” use digital online planning tools, company websites or mobile applications as sources of investment information and advice. About 1.5 million households report no use of digital advice, while approximately 700,000 households identify as “primary” or “usual” digital advice users.

NEXT: What’s worth paying for?

“As more sources of information and advice become easier to use, consumers are asking questions and becoming choosier about what’s worth paying for,” the analysis argues. “There’s also a growing preference for flat fees for specific financial services instead of a percentage that may become harder for the financial services industry to ignore.”

Interesting to note, although attitudes about what’s worth paying for vary in important ways by behavioral group, Hearts & Wallets finds most investors “would pay for help for at least one investment, income and tax optimization task, and often more.” 

“The real value is no longer investment selection,” Varas emphasizes. “When consumers choose to pay for help, they are buying the emotional benefits, such as peace of mind and confidence in broad and deep expertise, that come from services, not investment alpha per se.”

The study concludes that consumers are “also willing to pay for help avoiding pitfalls.” For example, heavy digital advice users believe certain tasks are worth paying for under certain circumstances, such as settling family disputes.

Another emerging trend is the sizable group of investors who use the term “passive” to describe themselves as investors. Because “passive” investing, or indexing, has received so much favorable news coverage, they use the term to describe their disengaged behavior with positive connotations, according to Hearts & Wallets.

“The investor who describes him- or herself as ‘passive’ is deliberately disinterested. He or she doesn’t mean an affinity for index funds,” Varas adds. “To connect with this group of consumers, providers need to develop positive emotional ties to being more engaged in their finances, regardless of what mix of passive or active investments is used.”

For more research and information, visit www.heartsandwallets.com.

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