Impact Investing: Aligning Cash Holdings with Values
The impact investing market is expected to more than double over the next decade—and will coincide with the largest wealth transfer in history, empowering a new generation of impact-hungry investors. To stay competitive, wealth advisors will have to adapt.
The Challenge Facing Wealth Advisors
Building a trusting relationship is often cited as the key to being a successful wealth advisor, but that may not be enough in today’s day and age. The new generation of investors wants different products and investment alternatives. Specifically, investment products that align with their personal and social values. Many financial advisors are playing catch up.
Since then, impact investing has only gotten more complicated. Regulators around the world are pushing for increasing transparency and reporting standards. Hundreds of new products—in asset classes ranging from equities and bonds to microloans and mutual funds—have come to market purporting to be impact-focused. Meanwhile, skepticism about whether these products are having a tangible impact has been mounting amid a lack of clear measurement standards and widespread claims of greenwashing.
Start Simple
Often the best way to solve complex problems is to break them down and start simple. In that spirit, a good place to begin with impact investing is to focus on aligning the “cash holdings” portion of an investment portfolio with an investor’s values.
How does this work in practice? Say your client is interested in reducing fossil fuel production. Maybe, however, her deposits are being held in a bank notorious for making big loans to oil and gas companies. Shifting those deposits to an FDIC-insured bank that better aligns with her values would be a great first step in advancing impact investing objectives.
Survey Insights
- Two-thirds of respondents from financial institutions and financial services firms report that interest in values-based banking has increased in recent years.
- The majority (55%) of depositors would be willing to give up a portion of their returns to an institution that is aligned with their values.
- Nearly four in 10 value-inclined depositors are willing to give up 15% or more of return on their impact investments.
- Over half (55%) of depositors are concerned about bank safety after the 2023 bank failures, underscoring the importance of FDIC insurance.
Conclusion
Developing a comprehensive deposit management strategy on your client’s behalf can not only keep funds safer and improve value alignment but also drive increased returns. Keeping it simple by aligning cash holdings with the right financial institution can be a great way for wealth advisors—and their clients—to get started on their impact investing journey.
Reid Thomas is Chief Strategy Officer at deposit management services firm Ampersand