Why is Nobody Talking About Financial Advisors?

By Tyler Jackson

If we want environmental, social and governance (ESG) factors to permeate all layers of the financial system, we need to talk about financial advisors.

As Jessica Matthews, head of mission-related investing at Cambridge Associates, said at SOCAP16, “We need to think of advisors as a gateway, rather than a gatekeeper to impact investing.” Ultimately it’s financial advisors who hold the key to unlocking institutional-level disruption in this space. So, why aren’t we talking about them?

1. Advisors should be a gateway to impact

A favorite fact in the impact investing community is that investors, 75 percent of women and 84 percent of millennials, are demanding ethically sourced investments. However, the percentage of investors who have actually made ethical investments is closer to 18 percent.

Why does that gap exist? The fact is that investors are more likely to make financial decisions, particularly non-traditional ones that involve ESG factors, when they have the support of a trusted advisor. Consumer reliance on financial advisors has increased 43 percent in the aftermath of the financial crisis, from 28 percent in 2010 to 40 percent in 2015. However, fewer than 10 percent of advisors currently report being highly interested in the ESG field.

Financial advisors are stereotypically known for never being the first to market and are considered weary of exploring the unknown. The truth is that most financial advisor training and education programs still don’t incorporate ESG strategies, leaving the majority of financial advisors educated with the same tactics that created the 2008 financial crisis (and all the ones before it).

2. Finding the right advisor should be breathtakingly easy

The investor-advisor matchmaking process is often confusing, time consuming, and unsuccessful. In a 2016 survey conducted of 1,287 high net worth investors, Fidelity found that 45 percent of investors would not recommend their current advisors, while 20 percent were considering breaking up with their advisors altogether. A similar survey has not been conducted for investors who identify as values-driven, but it’s safe to surmise that those numbers would be significantly higher for that subset of the investor population.

At a time when consumers base the majority of their decision-making on information they find online, investors need to be given the online tools to make informed decisions about who their financial advisor is and what they believe in. Those tools simply do not exist. There are an average of 640,000 Google searches every month for the phrase “financial advisor,” yet 49 percent of Americans who have not yet received financial advice report delaying getting that advice because they don’t know what sources or whom they can trust.

The bottom line

At SOCAP16 everyone was buzzing about the record level of investor demand for ESG investments. But nobody was talking about how those investors would find values-aligned financial advisors who would encourage them to actually write the checks. Values Advisor, the startup I work for, is attempting to bridge that gap. On one end, it is an online matchmaking platform where investors can find advisors who align with their social and environmental values as well as their financial goals, and on the other it’s an educational resource for advisors who are learning about adding ESG factors to their toolbelt.

Capital will not flow by itself. If we want to see ESG factors permeate all layers of the financial system, we need to make it painfully easy for everyone who says they are “interested” in ESG investing to actually move their money. More social finance innovations need to include financial professionals, rather than exclude them, and financial advisors need to actively seek out resources and organizations such as U.S. SIF, Paul Ellis Consulting, As You Sow and UNPRI that can help them incorporate ethical considerations into their practice.

Image credit: Pixabay

Tyler Jackson is a social finance consultant who helps mission-driven organizations research, develop, and manage projects that break down social investment barriers. He is the COO of Values Advisor, an online matchmaking startup that is revisioning the way investors find values-aligned financial advisors. Previously, he was the Development Director of Invest with Values and a Fellow at RSF Social Finance. Tyler holds an MBA in Sustainable Management from Presidio Graduate School.

Visit www.tylervjackson.com or follow him on twitter @tylervjackson